<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1998
REGISTRATION NO. 333-28081
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
-----------------
BANCORPSOUTH, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MISSISSIPPI 6712 64-0659571
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ONE MISSISSIPPI PLAZA
TUPELO, MISSISSIPPI 38801
(601) 680-2000
(Address, Including Zip Code, and Telephone Number, including
Area Code, of registrant's principal executive offices)
AUBREY B. PATTERSON
BANCORPSOUTH, INC.
ONE MISSISSIPPI PLAZA
TUPELO, MISSISSIPPI 38801
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
With copies to:
THEODORE W. LENZ, ESQ.
WALLER LANSDEN DORTCH & DAVIS, PLLC
511 UNION STREET, SUITE 2100
NASHVILLE, TENNESSEE 37219
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Post-Effective Amendment becomes
effective.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________________________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
<PAGE> 2
[MERCHANTS LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Merchants Capital Corporation and
BancorpSouth, Inc. have approved a transaction that would result in Merchants
merging into BancorpSouth. The combined company would have banking operations in
Mississippi and west Tennessee and, based upon the companies' June 30, 1998
balance sheets, total assets of about $4.7 billion, deposits of about $4.0
billion and shareholders' equity of about $398.5 million.
If the merger is completed, shareholders of Merchants will receive
3.768 shares of BancorpSouth common stock for each share of Merchants common
stock that they own. Based upon shares outstanding on ___________, 1998, this
would result in former Merchants shareholders owning about ___% of the
outstanding shares of BancorpSouth common stock.
The merger can't be completed unless Merchants' shareholders approve
it. Merchants has scheduled a special meeting for its shareholders to vote on
the merger. The date, time and place of the special meeting are as follows:
_______, 1998
______ __.m (local time)
Merchants Bank
Board Room, Third Floor
820 South Street
Vicksburg, Mississippi
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
special shareholders meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the merger. If you don't return your card, the effect will
be a vote against the merger.
The attached Prospectus Supplement/Proxy Statement provides you with
detailed information about the proposed merger. You can also obtain information
about Merchants and BancorpSouth from documents each has filed with the
Securities and Exchange Commission. We encourage you to read this entire
document carefully.
The Board of Directors of Merchants unanimously recommends that
shareholders vote in favor of the merger.
Very truly yours,
Howell N. Gage
Chairman and Chief Executive Officer
<PAGE> 3
[MERCHANTS LOGO]
NOTICE OF SPECIAL SHAREHOLDERS MEETING
TO BE HELD ON ________, 1998
TO THE SHAREHOLDERS OF MERCHANTS CAPITAL CORPORATION:
This serves as notice to you that a special meeting of shareholders of
Merchants Capital Corporation will be held in the Board Room on the third floor
of Merchants Bank's main office at 820 South Street, Vicksburg, Mississippi, on
___________, 1998 at ____ __.m., local time, for the purpose of considering and
voting upon the following matters:
1. Merger. Approval and adoption of the Agreement and Plan of Merger,
dated as of May 2, 1998, between Merchants and BancorpSouth, and the
transactions contemplated in that agreement, including the merger of Merchants
with and into BancorpSouth.
2. Other Matters. To consider and vote on other matters that properly
come before the special meeting or any adjournments or postponements of the
special meeting.
Only holders of record of Merchants common stock at the close of
business on ________, 1998 are entitled to notice of and to vote at the special
meeting or any adjournments or postponements of the special meeting.
Under Article 13 of the Mississippi Business Corporation Act (the
"MBCA"), holders of Merchants common stock who comply with Article 13 of the
MBCA will have the right to dissent from the merger and to obtain payment of the
fair value of their shares. A copy of Article 13 of the MBCA is attached as
Annex B to the attached Prospectus Supplement/Proxy Statement. In addition,
please see the section entitled "THE MERGER -- Dissenters' Rights" in the
attached Prospectus Supplement/Proxy Statement for a discussion of the
procedures to be followed in asserting these dissenters' rights.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. All shareholders are cordially invited
to attend the special meeting. To ensure your representation at the special
meeting, please complete and promptly mail the enclosed proxy in the enclosed
return envelope. This will not prevent you from voting in person, but will help
to secure a quorum and avoid added solicitation costs. Your proxy may be revoked
at any time before it is voted. Please review the Prospectus Supplement/Proxy
Statement accompanying this notice for more complete information regarding the
merger and the special meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Howell N. Gage
Chairman and Chief Executive Officer
__________, 1998
THE BOARD OF DIRECTORS OF MERCHANTS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT.
<PAGE> 4
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED ____________, 1998)
AND PROXY STATEMENT
2,798,309 SHARES
BANCORPSOUTH
COMMON STOCK
This Prospectus Supplement/Proxy Statement provides you with detailed
information about a proposed merger between BancorpSouth, Inc. and Merchants
Capital Corporation. If the merger is completed, Merchants will merge into
BancorpSouth and shareholders of Merchants will be issued shares of BancorpSouth
common stock in exchange for their shares of Merchants common stock. This
document also contains information about BancorpSouth and Merchants.
You can obtain additional information about BancorpSouth and Merchants
from documents that each has filed with the Securities and Exchange Commission.
See "WHERE YOU CAN FIND MORE INFORMATION" on page 51 of this document for
information on how to obtain copies of these documents.
The merger cannot be completed unless it is approved by Merchants
shareholders. Merchants has scheduled a special meeting of its shareholders to
vote on the merger, to be held as follows:
_______, 1998
______ __.m (local time)
Merchants Bank
Board Room, Third Floor
820 South Street
Vicksburg, Mississippi
BancorpSouth common stock is listed on the New York Stock Exchange
under the symbol "BXS." On _______, 1998, the closing price per share of
BancorpSouth common stock reported on the New York Stock Exchange was
$______.
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSIONER HAS APPROVED OR DISAPPROVED OF THE SHARES OF BANCORPSOUTH COMMON
STOCK TO BE ISSUED UNDER THIS PROSPECTUS SUPPLEMENT/PROXY STATEMENT OR
DETERMINED IF THIS PROSPECTUS SUPPLEMENT/PROXY STATEMENT IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
SHARES OF BANCORPSOUTH COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------
The date of this Prospectus Supplement/Proxy Statement is ____________,
1998.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
Questions and Answers About the Merger.........................................4
Summary........................................................................6
Selected Financial Data.......................................................13
Merchants Special Meeting.....................................................20
General....................................................................20
Proxies....................................................................20
Solicitation of Proxies....................................................21
Record Date and Voting Rights..............................................21
Recommendation of the Merchants Board......................................22
Dissenters' Rights.........................................................22
The Merger....................................................................26
Description of the Merger..................................................26
Background of the Merger...................................................27
Reasons for the Merger; Recommendation of the Merchants Board..............28
Fairness Opinion...........................................................30
Regulatory Approval........................................................32
Accounting Treatment.......................................................32
Certain Federal Income Tax Consequences....................................33
Interests of Certain Persons in the Merger.................................34
Comparison of Rights of Shareholders.......................................34
Restrictions on Resales by Affiliates......................................34
The Merger Agreement..........................................................36
Exchange of Certificates...................................................36
Conditions to the Merger...................................................37
Termination of the Merger Agreement........................................37
Conduct of Business Prior to the Merger and Other Covenants................38
Amendment of the Merger Agreement; Waiver; Expenses........................40
Stock Option Agreement.....................................................40
Price Range Of Common Stock And Dividends.....................................43
Market Prices..............................................................43
Dividends..................................................................44
Information About Merchants...................................................45
Comparison of Rights of Shareholders..........................................49
Voting Rights; Cumulative Voting...........................................49
Change of Control..........................................................49
Board of Directors.........................................................50
Removal of Directors.......................................................50
Authorized Shares of Capital Stock.........................................50
Rights of Shareholders to Call Special Meetings............................51
Where You Can Find More Information...........................................51
Cautionary Statement Concerning Forward-Looking Information...................53
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2
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Legal Matters.................................................................54
Experts.......................................................................54
Prospectus, dated _____________, 1998........................................P-1
Annex A - Agreement and Plan of Merger.....................................A-1
Annex B - Provisions of Article 13 of the Mississippi Business
Corporation Act, relating to dissenters' rights...............B-1
Annex C - Fairness Opinion of Southard Financial...........................C-1
Annex D - Stock Option Agreement...........................................D-1
</TABLE>
3
<PAGE> 7
QUESTIONS AND ANSWERS
ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will have the right to receive 3.768 shares of BancorpSouth common
stock in exchange for each share of Merchants common stock you own.
However, BancorpSouth won't issue any fractional shares. Instead, you
will receive an amount of cash for any fraction of a share equal to
$22.5625 times the fractional portion of a share of BancorpSouth common
stock.
For example, if you own ten shares of Merchants common stock, upon
completion of the merger you'll have the right to receive 37 shares of
BancorpSouth common stock and a check for $15.34 (or 0.68 times
$22.5625).
Q: WHAT HAPPENS AS THE MARKET PRICE OF BANCORPSOUTH COMMON STOCK
FLUCTUATES?
A: The exchange ratio is fixed at 3.768. Since the market value of
BancorpSouth common stock will fluctuate before and after the closing
of the merger, the value of the stock that shareholders of Merchants
will receive in the merger will fluctuate as well and could decrease.
Q: WHAT WILL HAPPEN TO MERCHANTS IN THE MERGER?
A: Merchants will merge into BancorpSouth and will no longer be a separate
company. BancorpSouth will be the surviving company in the merger and
will continue to exist after the merger is completed. The businesses
and operations of BancorpSouth and Merchants will be combined into a
single, larger company. Accordingly, Merchants shareholders will be
entitled to own a portion of the combined company, which is represented
by the shares of BancorpSouth common stock that they will receive in
the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: BancorpSouth and Merchants hope to complete the merger by the end of
________________, 1998. In addition to approval of shareholders of
Merchants, the companies must also obtain certain regulatory approvals,
including approval of the Federal Deposit Insurance Corporation and
Mississippi banking authorities.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on the enclosed proxy card how you want to vote, and sign
and mail the proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at Merchants' special
shareholders meeting. If you sign and send in your proxy but don't
indicate how you want to vote, your proxy will be counted as a vote in
favor of the merger. If you don't vote on the merger or if you abstain,
the effect will be a vote against the merger.
You are invited to Merchants special shareholders meeting to vote your
shares in person, rather than signing and mailing your proxy card. If
you do sign your proxy card, you can take back your proxy at any time
until the special shareholders meeting and either change your vote or
attend the special shareholders meeting and vote in person. More
detailed instructions about voting are provided on page 20 of this
document.
THE BOARD OF DIRECTORS OF MERCHANTS UNANIMOUSLY RECOMMENDS VOTING IN
FAVOR OF THE PROPOSED MERGER.
4
<PAGE> 8
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Only if you provide instructions to your broker on how to vote. You
should instruct your broker how to vote your shares, following the
directions your broker provides. Without instructions from you to your
broker, your shares will not be voted and this will effectively be a
vote against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. No one should send their stock certificates in now. After the
merger is completed, you will be sent written instructions on how to
exchange your Merchants common stock for BancorpSouth common stock.
Q. WHOM DO I CONTACT IF I HAVE QUESTIONS ABOUT THE MERGER?
A. If you have more questions about the merger, you should contact:
Merchants Capital Corporation
820 South Street
Vicksburg, Mississippi 39180
Attention: Howell N. Gage
Phone Number: (601) 636-3752
5
<PAGE> 9
SUMMARY
This summary highlights selected information from this document. It
does not contain all of the information that is important to you. You should
carefully read this entire document and the documents to which it refers you in
order to understand fully the merger and to obtain a more complete description
of the two companies and the legal terms of the merger. See "WHERE YOU CAN FIND
MORE INFORMATION." Each item in this summary includes a page reference that
directs you to a more complete description in this document of the topic
discussed.
THE COMPANIES (PAGE 45)
BANCORPSOUTH, INC.
One Mississippi Plaza
Tupelo, Mississippi 38801
(601) 680-2000
BancorpSouth is incorporated in the State of Mississippi and is a bank
holding company. Through its wholly-owned bank subsidiary, BancorpSouth Bank,
and its banking-related subsidiaries, BancorpSouth serves customers primarily in
Mississippi and west Tennessee. BancorpSouth Bank conducts a commercial banking
and trust business through 137 offices in 69 municipalities or communities in 43
counties throughout Mississippi and west Tennessee. It operates under the trade
names "Bank of Mississippi" in Mississippi and "Volunteer Bank" in Tennessee.
BancorpSouth's principal assets are the stock of its subsidiaries. As of June
30, 1998, BancorpSouth and its subsidiaries had total assets of about $4.5
billion, deposits of about $3.9 billion and shareholders' equity of about $378.9
million.
On June 19, 1998, BancorpSouth entered into a merger agreement with
Alabama Bancorp., Inc., a bank holding company based in Birmingham, Alabama, and
its two subsidiary banks, Highland Bank and First Community Bank of the South.
The merger agreement provides for the merger of Alabama Bancorp into
BancorpSouth, and the merger of Highland Bank and First Community Bank into
BancorpSouth Bank. Highland Bank operates seven banking locations in the
metropolitan Birmingham, Alabama area and First Community Bank operates four
banking locations in the Fort Deposit, Alabama area. As of June 30, 1998,
Alabama Bancorp and its subsidiaries had total assets of about $279.1 million
and total deposits of about $242.8 million.
On August 12, 1998, BancorpSouth entered into a merger agreement with
The First Corporation, a bank holding company based in Opelika, Alabama. The
merger agreement provides for the merger of The First Corporation into
BancorpSouth, and the merger of The First National Bank of Opelika, Alabama (a
wholly owned subsidiary of The First Corporation) into BancorpSouth Bank. The
First National Bank of Opelika operates two banking locations in Opelika,
Alabama and one banking location in Auburn, Alabama. As of June 30, 1998, The
First Corporation and its subsidiaries had total assets of about $147.2 million
and total deposits of about $125.5 million.
These mergers, which are subject to regulatory approval and other
conditions described in the merger agreement, are expected to be completed
during 1998. The parties have structured the mergers as tax-free exchanges of
common stock and intend to account for the mergers of the holding companies as
poolings of interests.
MERCHANTS CAPITAL CORPORATION
820 South Street
Vicksburg, Mississippi 39180
(601) 636-3752
Merchants is incorporated in the State of Mississippi and is a bank
holding company. Through its wholly-owned bank subsidiary, Merchants Bank, and
its banking-related subsidiaries,
6
<PAGE> 10
Merchants provides banking and other financial services at four locations in the
Vicksburg, Mississippi area, a location in Utica, Mississippi and in Edwards,
Mississippi and a loan production office in Jackson, Mississippi. Merchants'
principal assets are the stock of its subsidiaries. As of June 30, 1998,
Merchants and its subsidiaries had total assets of about $222.2 million,
deposits of about $184.8 million and shareholders' equity of about $19.7
million.
SPECIAL SHAREHOLDERS MEETING (PAGE 20)
A special meeting of Merchants shareholders will be held in the Board
Room on the third floor of Merchants Bank, 820 State Street, Vicksburg,
Mississippi, at ____ __.m. on ______, 1998. At the special meeting, shareholders
of Merchants will be asked to approve the merger agreement between Merchants and
BancorpSouth.
RECOMMENDATION TO SHAREHOLDERS (PAGE 22)
Merchants' Board of Directors believes that the merger between
Merchants and BancorpSouth is fair to you and in your best interests, and
unanimously recommends that you vote "FOR" the proposal to approve the merger
agreement.
RECORD DATE; VOTING POWER (PAGE 21)
Merchants' Board of Directors set ________________, 1998 as the record
date for determining the Merchants shareholders who are entitled to vote on the
merger of Merchants into BancorpSouth. You can vote at the Merchants special
meeting if you owned Merchants common stock as of the close of business on
______, 1998. On that date, 742,651 shares of Merchants common stock were
outstanding and therefore are allowed to vote at the Merchants special
shareholders meeting. You will be able to cast one vote for each share of
Merchants common stock you owned on _________, 1998.
VOTE REQUIRED (PAGE 21)
In order for the merger to be approved, Merchants shareholders holding
a majority of the outstanding shares of Merchants common stock on __________,
1998 must vote in favor of the merger. The directors and officers of Merchants
can cast a total of about 30.12% of the votes entitled to be cast at the
Merchants special shareholders meeting. The companies expect that these
directors and officers will vote all of their shares in favor of the merger.
THE MERGER (PAGE 26)
BancorpSouth and Merchants have entered into a merger agreement that
governs the merger. The merger agreement is attached to this Prospectus
Supplement/Proxy Statement as Annex A. You should read it carefully.
BACKGROUND OF THE MERGER (PAGE 27)
In November 1997, Merchants' Executive Committee concluded that
Merchants should explore the feasibility of entertaining merger proposals.
Merchants' Executive Committee reached this conclusion because of rapid changes
in the financial services industry, the attractive prices being paid for
acquired banks, the challenges presented by Year 2000 issues and the substantial
investments in technology facing Merchants. Merchants retained special counsel
to assist in obtaining merger proposals. A special meeting of Merchants' Board
of Directors was held on January 19, 1998, at which a plan to sell Merchants was
discussed and finalized. In January 1998, Merchants' Board of Directors
appointed an Acquisition Committee and merger proposals were solicited and
received. After negotiations during March and April 1998, Merchants' Board of
7
<PAGE> 11
Directors determined that BancorpSouth's proposal was the most attractive
proposal and in the best interest of Merchants shareholders, and approved the
merger on May 2, 1998.
REASONS FOR THE MERGER (PAGE 28)
The merger will combine the strengths of BancorpSouth and Merchants.
The combined company resulting from the merger should be able to achieve
superior financial performance compared to the individual companies on their
own. One reason for this is that the combined company should be able to reduce
costs substantially by eliminating overlap in the companies' operations and by
applying BancorpSouth's investments in technology to Merchants' operations.
Another reason is that the companies should have opportunities to increase
revenue by bringing a larger universe of customers in contact with a broader
range of products and services. The competitiveness of the financial services
industry is increasing continually, and the greater strength realized through
combining the two companies should enable them to provide superior products and
services to their customers and substantial benefits to their shareholders.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 33)
BancorpSouth and Merchants have structured the merger with the intent
that Merchants, its shareholders, BancorpSouth and its shareholders won't
recognize any gain or loss for U.S. federal income tax purposes in the merger,
except in connection with cash received instead of fractional shares by
Merchants shareholders or with respect to Merchants shareholders who dissent
from the merger under Mississippi law. The merger is conditioned on receipt of
legal opinions that this will be the case, but these opinions won't bind the
Internal Revenue Service, which could take a different view. Determining the
actual tax consequences of the merger to you can be complicated. They will
depend on your specific situation and many variables not within the companies'
control. You should consult your own tax advisor for a full understanding of the
merger's tax consequences.
ACCOUNTING TREATMENT (PAGE 32)
BancorpSouth and Merchants expect the merger to qualify as a pooling of
interests, which means that, for accounting and financial reporting purposes,
BancorpSouth will treat the combined companies as if they had always been one
company.
FAIRNESS OPINION (PAGE 30)
In deciding to approve the merger, Merchants' Board of Directors
considered the opinion of its financial advisor, Southard Financial, that as of
the date of its opinion the exchange ratio was fair from a financial point of
view to Merchants shareholders. This opinion is attached as Annex C to this
document. You should read it carefully.
INTERESTS OF CERTAIN PERSON IN THE MERGER (PAGE 34)
As of _________, 1998, Merchants' directors and executive officers
beneficially owned a total of 223,678 shares of Merchants common stock. Based
upon the exchange ratio of 3.768, this would result in these individuals
receiving an aggregate of approximately 842,819 shares of BancorpSouth common
stock upon consummation of the merger.
Mr. Howell N. Gage, who is Merchants' Chairman and Chief Executive
Officer, will become Chairman of BancorpSouth Bank's advisory community bank
board in Vicksburg, Mississippi after the merger. Mr. Joel H. Horton, who is
Merchants' President and Chief Operating Officer, will become President of
BancorpSouth Bank's community bank in Vicksburg, Mississippi after the merger.
Both Messrs. Gage and Horton have entered into employment agreements with
BancorpSouth Bank effective upon completion of the merger.
8
<PAGE> 12
DISSENTERS' RIGHTS (PAGE 22)
Mississippi law permits you to dissent from the merger and to have the
fair value of your Merchants common stock appraised by a court and paid to you
in cash. To do this, you must follow certain procedures, including the filing of
certain notices with Merchants and refraining from voting your shares in favor
of the merger. If you dissent from the merger, your shares of Merchants common
stock will not be exchanged for shares of BancorpSouth common stock in the
merger, and your only right will be to receive the appraised value of your
shares of Merchants common stock in cash.
REGULATORY APPROVALS (PAGE 32)
The companies can't complete the merger unless they obtain the approval
of the FDIC. The U.S. Department of Justice has input into the FDIC's approval
process. Federal law requires the companies to wait for up to 30 days before
completing the merger after the FDIC has approved it. Such approval is expected
to be obtained and the waiting period to have expired by _______, 1998.
In addition, the merger is subject to the approval of or notice to the
Mississippi Department of Banking and Consumer Finance. The companies have filed
all of the required applications and notices with this state regulatory
authority.
While the companies are not aware of any reason why they shouldn't
obtain the remaining regulatory approvals in a timely manner, they can't be
certain when they will obtain the approvals or that the companies will obtain
them.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 37)
The completion of the merger depends on a number of conditions being
met, including the following:
1. Shareholders of Merchants approving the merger;
2. The New York Stock Exchange having authorized for listing the
shares of BancorpSouth common stock to be issued to
shareholders of Merchants in the merger;
4. Receipt of all required regulatory approvals, including that
of the FDIC, and the expiration of any regulatory waiting
periods;
5. The absence of any governmental order blocking completion of
the merger, or of any proceedings by a government body trying
to block it;
6. Receipt of opinions of legal counsel to each company that the
U.S. federal income tax treatment in the merger will generally
be as described in this document; and
7. Howell N. Gage, Jr., the Chairman and Chief Executive Officer
of Merchants, and Joel H. Horton, the President and Chief
Operating Officer of Merchants, entering into employment
agreements with BancorpSouth Bank.
In cases where the law permits, a party to the merger agreement could
elect to waive a condition that has not been satisfied and complete the merger
although it is entitled not to. The companies can't be certain whether or when
any of these conditions will be satisfied (or waived, where permissible), or
that the merger will be completed.
9
<PAGE> 13
TERMINATION OF THE MERGER AGREEMENT (PAGE 37)
The companies can agree at any time to terminate the merger agreement
without completing the merger, even if the shareholders of Merchants have
already voted to approve it. Also, BancorpSouth can terminate the merger
agreement if Merchants' Board of Directors withdraws, or modifies in any way
adverse to BancorpSouth, its recommendation that shareholders of Merchants
approve the merger.
Moreover, either company can terminate the merger agreement in the
following circumstances:
1. After a final decision by a governmental authority to prohibit
the merger, or after the rejection of an application for a
governmental approval required to complete the merger (but in
the latter case, only after waiting 60 days);
2. If the merger isn't completed by March 31, 1999;
3. If the shareholders of Merchants don't approve the merger; or
4. If the other party violates, in a significant way, any of its
representations, warranties or obligations under the merger
agreement.
Generally, a party can only terminate the merger agreement in one of
the preceding four situations if that party isn't in violation of the merger
agreement or if its violations of the merger agreement aren't the cause of the
event permitting termination.
BANCORPSOUTH'S OPTION TO PURCHASE MERCHANTS COMMON STOCK (PAGE 40)
To induce BancorpSouth to enter into the merger agreement, Merchants
granted a stock option to BancorpSouth to purchase up to 148,150 shares of
Merchants common stock at a price per share of $63.00. The number of shares of
Merchants common stock that may be acquired upon exercise of the stock option
may not exceed 19.9% of the issued and outstanding shares of Merchants common
stock (without counting shares that are exercisable under the stock option).
BancorpSouth can't exercise the stock option unless certain specific
events take place. These events are generally related to a competing transaction
involving a merger, business combination or other acquisition of Merchants or
its stock or assets. As of the date of this Prospectus Supplement/Proxy
Statement, the companies are not aware that any event of that kind has occurred.
The stock option could have the effect of discouraging other companies that
might want to combine with or acquire Merchants from doing so. The stock option
agreement is attached as Annex D to this Prospectus Supplement/Proxy Statement.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Shares of BancorpSouth common stock are listed on the New York Stock
Exchange. On May 1, 1998, the last full trading day prior to the public
announcement of the merger, BancorpSouth common stock closed at $22.4375 per
share. On _____, 1998, BancorpSouth common stock closed at $_____ per share.
There is no established trading market for shares of Merchants common
stock, which is inactively traded in private transactions. Therefore, reliable
information is not available about the prices at which shares of Merchants
common stock have been bought and sold.
Based on the exchange ratio in the merger of 3.768 and the closing
price of BancorpSouth common stock on _________, 1998 of $_______, the market
value of the consideration that
10
<PAGE> 14
shareholders of Merchants will receive in the merger for each share of Merchants
common stock would be $_____. Of course, the market price of BancorpSouth common
stock will fluctuate prior to and after completion of the merger, while the
exchange ratio is fixed. You should obtain current stock price quotations for
BancorpSouth common stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 53)
This document, and other documents to which you are referred in this
document, contain forward-looking statements that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of the companies' operations or the
performance of the combined company after the merger. Forward-looking statements
generally include any of the words "believes," "expects," "anticipates" or
similar expressions. Many possible events or factors could affect the future
financial results and performance of each of the companies and the combined
company after the merger and could cause those results or performance to differ
materially from those expressed in forward-looking statements. These possible
events or factors include the following:
1. Problems or delays in bringing the two companies together, either
before or after the merger is consummated;
2. Legal and regulatory risks and uncertainties;
3. Economic, political and competitive forces affecting the
companies' businesses, markets, constituencies or securities; and
4. Inaccuracies in the two companies' analyses of these risks and
forces, and lack of success of strategies developed to deal with
them.
11
<PAGE> 15
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows information, for the periods indicated, about
BancorpSouth's and Merchants' net income per share, dividends per share and book
value per share, and similar information reflecting the merger of the two
companies (which is referred to as "pro forma" information). In presenting the
comparative pro forma information for certain time periods, it is assumed that
the two companies had been merged throughout those periods for accounting and
financial reporting purposes (a method which is referred to as the "pooling of
interests" method of accounting).
The information listed as "pro forma equivalent" was obtained by
multiplying the pro forma amounts by the exchange ratio of 3.768. It is intended
to reflect the fact that shareholders of Merchants will be receiving more than
one share of BancorpSouth common stock for each share of Merchants common stock
exchanged in the merger.
<TABLE>
<CAPTION>
BOOK VALUE PER SHARE: DECEMBER 31, 1997 JUNE 30, 1998
------------------- -------------
<S> <C> <C>
BancorpSouth historical............................... $ 8.09 $ 8.48
Merchants historical ................................. 24.95 26.29
BancorpSouth and Merchants pro forma (1).............. 8.01 8.39
Merchants pro forma equivalent (2).................... 30.17 31.62
<CAPTION>
NET INCOME PER SHARE: SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical .............................. $ 0.84 $ 1.02 $ 1.02 $ 0.59
Merchants historical ................................. 3.27 3.71 4.04 1.96
BancorpSouth and Merchants pro forma (1).............. 0.85 1.02 1.02 0.58
Merchants pro forma equivalent (2).................... 3.20 3.84 3.84 2.19
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS PER SHARE: SIX-MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1995 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
BancorpSouth historical .............................. $ 0.31 $ 0.35 $ 0.395 $ 0.220
Merchants historical ................................. 1.50 1.58 1.930 0.625
BancorpSouth and Merchants pro forma (1).............. 0.31 0.35 0.395 0.220
Merchants pro forma equivalent (2).................... 1.17 1.32 1.490 0.830
</TABLE>
- -----------------------
(1) Presented as if the merger of Merchants into BancorpSouth had been
effective throughout the periods presented.
(2) Calculated by multiplying the BancorpSouth and Merchants pro forma amount
by the exchange ratio.
12
<PAGE> 16
SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical financial
data for BancorpSouth and for Merchants and also show similar pro forma
information reflecting the merger of the two companies. The pro forma
information reflects the "pooling of interests" method of accounting for the
merger.
BancorpSouth and Merchants expect to incur merger-related expenses as a
result of combining the companies. The companies also anticipate that the merger
will provide the combined company with financial benefits such as reduced
operating expenses and the opportunity to earn more revenue. However, none of
these anticipated expenses or benefits has been factored into the pro forma
income statement information. For that reason, the pro forma information, while
helpful in illustrating the financial attributes of the combined company under
one set of assumptions, doesn't attempt to predict or suggest future results.
Also, the information set forth for the six-month period ended June 30, 1998
doesn't indicate what the results will be for the full 1998 fiscal year.
The information in the following tables is based on the historical
financial information of BancorpSouth and Merchants that has been presented in
their prior filings with the Securities and Exchange Commission. All of the
summary financial information provided in the following tables should be read in
connection with this historical financial information, which has been
incorporated by reference into this Prospectus Supplement/Proxy Statement. See
"WHERE YOU CAN FIND MORE INFORMATION." The financial information as of or for
the interim periods ended June 30, 1998 and 1997 has not been audited and in the
respective opinions of management reflects all adjustments (consisting only of
normal recurring adjustments) necessary to a fair presentation of such data.
13
<PAGE> 17
BANCORPSOUTH, INC.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Six Months
For the Years Ended December 31, Ended June 30,
--------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue ........... $ 193,869 $ 207,895 $ 252,427 $ 277,919 $ 307,094 $ 147,992 $ 165,833
Interest expense ........... 78,715 85,029 114,457 126,505 144,055 69,249 81,163
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest revenue ....... 115,154 122,866 137,970 151,414 163,039 78,743 84,670
Provision for credit ....... 9,032 5,946 6,206 8,804 9,008 3,649 6,013
losses
Other revenue ............ 26,776 26,012 31,240 40,745 43,667 21,178 23,323
Other expense .............. 93,176 99,372 111,750 118,472 131,988 60,754 62,343
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income tax
and accounting change ... 39,722 43,560 51,254 64,883 65,710 35,518 39,637
Applicable income taxes .... 10,216 12,832 15,750 22,000 20,360 11,631 13,240
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before accounting
change ................. 29,506 30,728 35,504 42,883 45,350 23,887 26,397
Accounting change, net of
tax ..................... 3,429 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ................. $ 32,935 $ 30,728 $ 35,504 $ 42,883 $ 45,350 $ 23,887 $ 26,397
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Basic earnings ............. $ 0.83 $ 0.7500 $ 0.85 $ 1.02 $ 1.020 $ 0.54 $ 0.59
Diluted earnings ........... 0.82 0.7500 0.84 1.01 1.010 0.53 0.59
Cash dividends ............. 0.27 0.2775 0.31 0.35 0.395 0.19 0.22
Book value ................. 5.91 6.2200 6.86 7.51 8.090 7.79 8.48
BALANCE SHEET DATA
(PERIOD END):
Total assets ............... $2,802,044 $3,019,118 $3,306,159 $3,617,239 $4,180,143 $3,821,106 $4,504,403
Loans, net of unearned
income .................. 1,785,933 2,025,614 2,295,166 2,469,334 2,759,027 2,584,607 2,907,802
Allowance for credit losses. 27,468 30,830 34,636 37,272 39,877 38,721 42,256
Securities ................. 664,741 746,861 679,058 760,805 939,631 895,702 1,161,991
Deposits ................... 2,466,285 2,598,669 2,863,612 3,161,379 3,540,255 3,342,763 3,852,327
Long-term debt:
Parent ................. 24,508 24,508 24,508 -- -- -- --
Subsidiaries ........... -- 23,520 49,116 55,778 47,539 48,928 170,928
Total stockholders' equity.. 233,168 252,852 288,095 315,324 360,422 346,089 378,866
BALANCE SHEET DATA
(AVERAGES):
Total assets ............... $2,659,785 $2,884,539 $3,151,297 $3,452,921 $3,853,818 $3,760,026 $4,319,651
Total stockholders'
equity ................... $ 218,504 $ 240,929 $ 268,395 $ 299,749 $ 344,166 $ 335,672 $ 367,461
Average number of
diluted shares
outstanding .............. 40,103 40,780 42,031 42,259 44,789 44,723 45,066
SELECTED RATIOS
(ANNUALIZED):
Return on average assets ... 1.24% 1.07% 1.13% 1.24% 1.18% 1.27% 1.22%
Return on average
stockholders' equity ..... 15.07 12.75 13.23 14.31 13.18 14.23 14.37
Net interest margin ...... 4.89 4.76 4.86 4.81 4.64 4.70 4.33
Net charge-offs to
average loans ............ 0.34 0.14 0.15 0.26 0.27 0.33 0.20
Tier 1 capital to
risk-weighted assets ..... 11.00 11.31 12.11 12.14 12.49 12.69 --
Total capital to
risk-weighted assets ..... 13.70 13.49 13.97 13.39 13.74 13.94 --
Leverage ratio ............. 8.30 8.33 8.56 8.56 8.82 8.87 --
</TABLE>
14
<PAGE> 18
MERCHANTS CAPITAL CORPORATION
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
For the Six Months Ended
For the Years Ended December 31, June 30,
---------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest revenue ......... $ 11,638 $ 11,994 $ 14,622 $ 15,685 $ 16,671 $ 8,122 $ 8,495
Interest expense ......... 4,714 4,887 6,362 6,904 7,403 3,632 3,754
-------- -------- -------- -------- -------- -------- --------
Net interest revenue ..... 6,924 7,107 8,260 8,781 9,268 4,490 4,741
Provision for credit
losses.................. 132 190 140 320 420 210 210
Other revenue ............ 2,268 1,728 2,200 2,676 2,901 1,416 1,439
Other expense ............ 6,447 6,494 6,993 7,135 7,235 3,623 3,787
-------- -------- -------- -------- -------- -------- --------
Income before income tax.. 2,613 2,151 3,327 4,002 4,514 2,073 2,183
Applicable income taxes .. 871 750 1,122 1,376 1,511 626 728
-------- -------- -------- -------- -------- -------- --------
Net income ............... $ 1,742 $ 1,401 $ 2,205 $ 2,626 $ 3,003 $ 1,447 $ 1,455
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Basic earnings ........... $ 3.13 $ 2.08 $ 3.27 $ 3.71 $ 4.04 $ 1.950 $ 1.960
Diluted earnings ......... 3.13 2.08 3.27 3.71 4.04 1.950 1.960
Cash dividends ........... 1.50 1.00 1.50 1.58 1.93 0.575 0.625
Book value ............... 24.12 23.23 22.97 23.97 24.95 24.210 26.290
BALANCE SHEET DATA
(PERIOD END):
Total assets ............. $171,300 $172,301 $195,702 $206,063 $223,999 $210,242 $222,156
Loans, net of unearned
income ................. 91,567 100,829 127,514 132,410 141,022 132,163 139,230
Allowance for credit
losses ................... 1,233 1,273 1,467 1,546 1,592 1,661 1,593
Securities ............... 59,755 43,850 52,544 42,914 68,152 62,242 53,422
Deposits ................. 154,780 154,142 171,709 177,269 191,136 176,717 184,787
Long-term debt ........... -- -- -- -- -- -- --
Total stockholders'
equity ................. 13,445 13,707 15,437 17,004 18,619 18,031 19,665
BALANCE SHEET DATA
(AVERAGES):
Total assets ............. $171,459 $173,868 $188,725 $202,025 $214,470 $211,692 $217,811
Total stockholders'
equity ................. $ 13,445 $ 14,242 $ 15,445 $ 16,957 $ 18,531 $ 17,978 $ 19,270
Average number of diluted
shares outstanding ..... 557 613 674 708 743 743 743
SELECTED RATIOS
(ANNUALIZED):
Return on average assets.. 1.02% 0.81% 1.17% 1.30% 1.40% 1.37% 1.34%
Return on average
stockholders' equity ... 13.19 10.18 14.91 15.86 16.60 16.45 15.10
Net interest margin ... 4.36 4.41 4.75 4.68 4.65 4.56 4.26
Net charge-offs to
average loans ......... 0.57 0.15 0.73 0.35 0.28 0.15 0.15
Tier 1 capital to
risk-weighted assets ... 13.26 12.93 11.11 11.76 12.44 12.61 13.11
Total capital to
risk-weighted assets ... 14.50 14.01 12.36 12.86 13.54 13.81 14.20
Leverage ratio ........... 7.70 8.03 7.63 8.02 8.21 8.25 8.55
</TABLE>
15
<PAGE> 19
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
---------------------------
BancorpSouth Merchants Adjustments Pro Forma
------------ --------- ----------- ---------
ASSETS: (In thousands)
<S> <C> <C> <C> <C>
Cash and due from banks....... $ 292,772 $ 10,085 $ 302,857
Held-to-maturity securities... 533,419 -- 601,571
Available-for-sale securities. 406,212 68,152 406,212
Federal funds sold............ -- 3,474 3,474
Loans and leases.............. 2,852,885 139,426 2,992,311
Less: Unearned discount....... 93,858 1,596 95,454
Allowance for credit losses... 39,877 1,592 41,469
---------- --------- ----------
Net loans and leases.......... 2,719,150 136,238 2,855,388
Mortgages held for sale....... 39,134 -- 39,134
Premises and equipment, net... 101,373 2,698 104,071
Other assets.................. 88,083 3,352 91,435
---------- -------- ----------
Total assets.................. $4,180,143 $223,999 $4,404,142
========== ======== ==========
LIABILITIES:
Deposits:
Non-interest bearing........ $ 467,962 $ 25,378 $ 493,340
Interest bearing............ 3,072,293 165,758 3,238,051
---------- -------- ----------
Total deposits................ 3,540,255 191,136 3,731,391
Short-term borrowings......... 177,450 11,922 189,372
Long-term debt................ 47,539 -- 47,539
Other liabilities............. 54,477 2,322 56,799
---------- -------- ----------
Total liabilities............. 3,819,721 205,380 4,025,101
---------- -------- ----------
STOCKHOLDERS' EQUITY:
Common stock.................. 111,980 3,713 $ 3,283 (1) 118,976
Capital surplus............... 95,699 13,877 (3,283) (1) 106,293
Unrealized gain on available-
for-sale securities......... 4,482 88 4,570
Retained earnings............. 150,580 941 151,521
Less cost of treasury stock... (2,319) -- (2,319)
---------- -------- ----------
Total stockholders' equity.... 360,422 18,619 379,041
---------- -------- ------- ----------
Total liabilities and
stockholders' equity........ $4,180,143 $223,999 -- $4,404,142
========== ======== ======= ==========
</TABLE>
----------------------
(1) Reclassification of capital accounts to reflect the exchange of
Merchants Common Stock for BancorpSouth Common Stock.
16
<PAGE> 20
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------
BancorpSouth Merchants Adjustments Pro Forma
------------ --------- ----------- ---------
ASSETS: (In thousands)
<S> <C> <C> <C> <C>
Cash and due from banks........ $ 164,675 $ 9,540 $ 174,215
Held-to-maturity securities.... 784,279 -- 784,279
Available-for-sale securities.. 377,712 53,422 431,134
Federal funds sold............. 47,000 15,598 62,598
Loans and leases............... 3,005,395 140,277 3,145,672
Less: Unearned discount........ 97,593 1,047 98,640
Allowance for credit losses.... 42,256 1,593 43,849
---------- --------- ----------
Net loans and leases........... 2,865,546 137,637 3,003,183
Mortgages held for sale........ 59,415 -- 59,415
Premises and equipment, net.... 106,153 2,515 108,668
Other assets................... 99,623 3,444 103,067
---------- --------- ----------
Total assets................... $4,504,403 $ 222,156 $4,726,559
========== ========= ==========
LIABILITIES:
Deposits:
Non-interest bearing......... $ 488,974 $ 22,158 $ 511,132
Interest bearing............. 3,363,353 162,629 3,525,982
---------- --------- ----------
Total deposits................. 3,852,327 184,787 4,037,114
Short-term borrowings.......... 47,680 16,311 63,991
Long-term debt................. 170,928 -- 170,928
Other liabilities.............. 54,602 1,394 55,996
---------- --------- ----------
Total liabilities............ 4,125,537 202,492 4,328,029
---------- --------- ----------
STOCKHOLDERS' EQUITY:
Common stock................... 111,980 3,713 $ 3,283 (1) 118,976
Capital surplus................ 96,130 13,877 (3,283) (1) 106,724
Unrealized gain on available-
for-sale securities.......... 6,092 142 6,234
Retained earnings.............. 165,666 1,932 167,598
Less cost of treasury stock.... (1,002) -- (1,002)
---------- --------- ----------
Total stockholders' equity..... 378,866 19,664 398,530
---------- --------- -------- ----------
Total liabilities and
stockholders' equity........ $4,504,403 $ 222,156 -- $4,726,559
========== ========= ======== ==========
</TABLE>
-----------------------
(1) Reclassification of capital accounts to reflect the exchange of
Merchants Common Stock for BancorpSouth Common Stock.
17
<PAGE> 21
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the three years ended December 31,
------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------ ------------------------------ ------------------------------
Bancorp- Bancorp- Bancorp-
South Merchants Pro South Merchants Pro South Merchants Pro
Historical Historical Forma Historical Historical Forma Historical Historical Forma
---------- ---------- ----- ---------- ---------- ----- ---------- ---------- -----
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest revenue .. $252,427 $ 14,622 $267,049 $277,919 $ 15,685 $293,604 $307,094 $ 16,671 $323,765
Interest expense .. 114,457 6,362 120,819 126,505 6,904 133,409 144,055 7,403 151,458
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest
revenue ......... 137,970 8,260 146,230 151,414 8,781 160,195 163,039 9,268 172,307
Provision for
credit losses ... 6,206 140 6,346 8,804 320 9,124 9,008 420 9,428
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net interest
revenue, after
provision for
credit losses ... 131,764 8,120 139,884 142,610 8,461 151,071 154,031 8,848 162,879
Other revenue ..... 31,240 2,200 33,440 40,745 2,676 43,421 43,667 2,901 46,568
Other expense ..... 111,750 6,993 118,743 118,472 7,135 125,607 131,988 7,235 139,223
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income before
income tax and
accounting
change .......... 51,254 3,327 54,581 64,883 4,002 68,885 65,710 4,514 70,224
Applicable income
taxes ........... 15,750 1,122 16,872 22,000 1,376 23,376 20,360 1,511 21,871
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income ........ $ 35,504 $ 2,205 $ 37,709 $ 42,883 $ 2,626 $ 45,509 $ 45,350 $ 3,003 $ 48,353
======== ======== ======== ======== ======== ======== ======== ======== ========
EARNINGS PER
SHARE
Basic ........... $ 0.85 $ 3.27 $ 0.85 $ 1.02 $ 3.71 $ 1.02 $ 1.02 $ 4.04 $ 1.02
Diluted ......... $ 0.84 $ 3.27 $ 0.85 $ 1.30 $ 3.71 $ 1.01 $ 1.01 $ 4.04 $ 1.02
AVERAGE SHARES
Basic ........... 41,749 674 44,289 41,991 708 44,659 44,427 743 47,227
Diluted ......... 42,031 674 44,571 42,259 708 44,927 44,789 743 47,589
</TABLE>
18
<PAGE> 22
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
-------------------------------------------------------------------------------------------
1997 1998
----------------------------------------- --------------------------------------------
BancorpSouth Merchants BancorpSouth Merchants
Historical Historical Pro Forma Historical Historical Pro Forma
---------- ---------- --------- ---------- ---------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Interest revenue.... $147,992 $8,122 $156,114 $165,833 $8,495 $174,328
Interest expense.... 69,249 3,632 72,881 81,163 3,754 84,917
-------- ------ -------- -------- ------ --------
Net interest revenue 78,743 4,490 83,233 84,670 4,741 89,411
Provision for credit
losses............ 3,649 210 3,859 6,013 210 6,223
-------- ------ -------- -------- ------ --------
Net interest revenue,
after provision for
credit losses..... 75,094 4,280 79,374 78,657 4,531 83,188
Other revenue....... 21,178 1,416 22,594 23,323 1,439 24,762
Other expense....... 60,754 3,623 64,377 62,343 3,787 66,130
-------- ------ -------- -------- ------ --------
Income before income
tax............... 35,518 2,073 37,591 39,637 2,183 41,820
Applicable income
taxes............. 11,631 626 12,257 13,240 728 13,968
-------- ------ -------- -------- ------ --------
Net income.......... $ 23,887 $1,447 $ 25,334 $ 26,397 $1,455 $ 27,852
======== ====== ======== ======== ====== ========
EARNINGS PER SHARE
Basic............. $ 0.54 $ 1.95 $ 0.54 $ 0.59 $ 1.96 $ 0.59
Diluted........... $ 0.53 $ 1.95 $ 0.53 $ 0.59 $ 1.96 $ 0.58
AVERAGE SHARES
Basic ............ 44,407 743 47,207 44,551 743 47,351
Diluted........... 44,723 743 47,523 45,066 743 47,866
</TABLE>
19
<PAGE> 23
MERCHANTS SPECIAL MEETING
GENERAL
This Prospectus Supplement/Proxy Statement is first being mailed to the
holders (the "Merchants Shareholders") of shares of common stock, $5.00 par
value per share ("Merchants Common Stock"), of Merchants Capital Corporation, a
Mississippi corporation ("Merchants"), on or about ___________, 1998. It is
accompanied by the Notice of Special Meeting and a form of proxy that is
solicited by the Board of Directors of Merchants (the "Merchants Board") for use
at the special meeting of Merchants Shareholders (the "Merchants Special
Meeting"), and at any adjournments or postponements thereof, to be held as
follows:
_______, 1998
______ __.m (local time)
Merchants Bank
Board Room, Third Floor
820 South Street
Vicksburg, Mississippi
At the Merchants Special Meeting, Merchants Shareholders will consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger, dated as
of May 2, 1998 (the "Merger Agreement"), between Merchants and BancorpSouth,
Inc., a Mississippi corporation ("BancorpSouth"), and the transactions
contemplated thereby, including the merger of Merchants with and into
BancorpSouth (the "Merger").
PROXIES
A Merchants Shareholder may use the accompanying proxy if such
Merchants Shareholder is unable to attend the Merchants Special Meeting in
person or wishes to have his or her shares voted by proxy even if such
shareholder does attend the meeting. A Merchants Shareholder may revoke any
proxy given pursuant to this solicitation by delivering to the Secretary of
Merchants, prior to the taking of the vote at the Merchants Special Meeting, a
written notice revoking the proxy or a duly executed proxy relating to the same
shares bearing a later date or by attending the meeting and voting in person;
however, attendance at the Merchants Special Meeting will not in and of itself
constitute a revocation of a proxy.
All written notices of revocation and other communications with respect
to the revocation of Merchants proxies should be addressed to:
Merchants Capital Corporation
820 South Street
Vicksburg, Mississippi 39180
Attention: Secretary.
For such notice of revocation or later proxy to be valid, however, it
must actually be received by Merchants prior to the vote of the Merchants
Shareholders at the Merchants Special Meeting. All shares represented by valid
proxies received pursuant to this solicitation, and not revoked before they are
exercised, will be voted in the manner specified therein. If no specification is
made, the proxies will be voted in favor of approval of the Merger Agreement.
Merchants is currently unaware of any other matters that may be
presented for action at the Merchants Special Meeting. If other matters do
properly come before the Merchants Special Meeting, however, shares represented
by proxies will be voted (or not voted) by the persons named in the proxies in
their discretion.
20
<PAGE> 24
SOLICITATION OF PROXIES
The cost of soliciting proxies from the Merchants Shareholders will be
borne by Merchants and BancorpSouth. In addition to the solicitation of proxies
by mail, Merchants will request banks, brokers and other record holders to send
proxies and proxy material to the beneficial owners of the stock and secure
their voting instructions, if necessary. Merchants will reimburse such record
holders for their reasonable expenses in so doing. If necessary, Merchants may
also use several of its regular employees, who will not be specially
compensated, to solicit proxies from Merchants Shareholders, either personally
or by telephone, telegram, facsimile or special delivery letter.
RECORD DATE AND VOTING RIGHTS
The Merchants Board has fixed ____________, 1998 as the record date
(the "Merchants Record Date") for the determination of the Merchants
Shareholders entitled to receive notice of and to vote at the Merchants Special
Meeting. Accordingly, only Merchants Shareholders of record at the close of
business on the Merchants Record Date will be entitled to notice of and to vote
at the Merchants Special Meeting. At the close of business on the Merchants
Record Date, there were 742,651 shares of Merchants Common Stock entitled to
vote at the Merchants Special Meeting held by approximately 540 holders of
record.
The presence, in person or by proxy, of shares of Merchants Common
Stock representing a majority of the votes entitled to be cast on the Merger
Agreement and the transactions contemplated thereby on the Merchants Record Date
is necessary to constitute a quorum at the Merchants Special Meeting. Each share
of Merchants Common Stock outstanding on the Merchants Record Date entitles its
holder to one vote as to the approval of the Merger Agreement and the
transactions contemplated thereby and any other proposal that may properly come
before the Merchants Special Meeting.
Merchants will count shares of Merchants Common Stock present in person
at the Merchants Special Meeting but not voting, and shares of Merchants Common
Stock for which it has received proxies but with respect to which holders of
such shares have abstained, as present at the Merchants Special Meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. Abstentions are counted as present at the Merchants Special Meeting
for purposes of determining whether a quorum exists and have the effect of a
vote "against" any matter as to which they are specified. Proxies submitted by
brokers that do not indicate a vote for some or all of the proposals because
they don't have discretionary voting authority and haven't received instructions
as to how to vote on those proposals (so-called "broker non-votes") will be
counted as present at the Merchants Special Meeting for purposes of determining
whether a quorum exists and have the effect of a vote "against" any proposal as
to which instructions on how to vote were not provided.
Under the Mississippi Business Corporation Act (the "MBCA"), approval
of the Merger Agreement requires the affirmative vote of the holders of a
majority of all votes entitled to be cast on the Merger Agreement at the
Merchants Special Meeting. Because approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of outstanding shares of Merchants
Common Stock, abstentions and broker non-votes will have the same effect as
negative votes. Accordingly, the Merchants Board urges Merchants Shareholders to
complete, date and sign the accompanying proxy and return it promptly in the
enclosed, postage-paid envelope.
As of the Merchants Record Date, approximately 223,678 shares of
Merchants Common Stock, or approximately 30.12% of the shares entitled to vote
at the Merchants Special Meeting, were beneficially owned by directors and
executive officers of Merchants. It is expected that each director and executive
officer of Merchants will vote the shares of Merchants Common Stock beneficially
owned by him or her for approval of the Merger Agreement and the transactions
contemplated thereby. In addition, as of the Merchants Record Date, the banking
and trust subsidiaries of
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Merchants held approximately 84,882 shares of Merchants Common Stock and
exercised shared or sole voting power with respect to each of such shares.
Additional information regarding the directors and executive officers
of Merchants, and the beneficial ownership of Merchants Common Stock by
individuals and entities owning more than 5% of such stock and by directors and
executive officers of Merchants, is incorporated by reference to Merchants'
Annual Report on Form 10-K for the year ended December 31, 1997. See "WHERE YOU
CAN FIND MORE INFORMATION."
RECOMMENDATION OF THE MERCHANTS BOARD
The Merchants Board has unanimously approved the Merger Agreement and
the transactions contemplated thereby. The Merchants Board believes that the
Merger is fair to and in the best interests of Merchants and the Merchants
Shareholders and unanimously recommends that the Merchants Shareholders vote
"FOR" approval and adoption of the Merger Agreement and the transactions
contemplated thereby. See "THE MERGER -- Reasons for the Merger."
DISSENTERS' RIGHTS
Under Article 13 of the MBCA, each Merchants Shareholder who dissents
from the Merger has the right to have the fair value of such Merchants
Shareholder's shares of Merchants Common Stock appraised and paid to such
Merchants Shareholder in cash. The following discussion summarizes the
provisions of the MBCA which describe such dissenters' rights. For complete
information, please review MBCA Sections 13.01 to 13.31, a copy of which is
attached as Annex B to this Prospectus Supplement/Proxy Statement.
The availability of dissenters' rights is conditioned upon compliance
with applicable law. Accordingly, any Merchants Shareholder who wishes to
dissent from the proposed Merger and receive the value of his or her Merchants
Common Stock in cash should consult with his or her counsel.
A Merchants Shareholder's failure to vote against the Merger will not
constitute a waiver of his or her appraisal or similar rights. A vote against
the Merger by a Merchants Shareholder will not be deemed to satisfy all of the
notice requirements under Mississippi law with respect to appraisal rights.
In order to be eligible to exercise the right to dissent, a Merchants
Shareholder must:
1. Give notice in writing to Merchants prior to the vote on the Merger
that such Merchants Shareholder intends to demand payment for his
or her shares of Merchants Common Stock if the Merger is
consummated; and
2. Not vote such shares of Merchants Common Stock in favor of the
Merger.
If the Merger is approved at the Merchants Special Meeting,
BancorpSouth must deliver a written notice (the "Dissenters' Notice") to all
Merchants Shareholders who satisfied the requirements referred to in the
preceding paragraph within ten days after the Effective Date. This notice must:
1. State where the payment demand ("Payment Demand") must be sent
and where Merchants Certificates must be deposited;
2. Inform holders of uncertificated shares of Merchants Common Stock
to what extent transfer of the shares will be restricted after the
payment demand is received;
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3. Supply a form for demanding payment that includes the date of the
first announcement to the news media or to Merchants Shareholders
of the terms of the proposed Merger and requires that the
Merchants Shareholder asserting dissenters' rights certify
whether he or she acquired beneficial ownership of the shares of
Merchants Common Stock before that date;
4. Set a date by which BancorpSouth must receive the Payment Demand,
which date may not be fewer than 30 nor more than 60 days after
the date the Dissenters' Notice is delivered; and
5. Be accompanied by a copy of Article 13 of the MBCA.
A Merchants Shareholder who is sent a Dissenters' Notice must demand
payment, certify that such Merchants Shareholder acquired beneficial ownership
of the shares of Merchants Common Stock before the date required to be set forth
in the Dissenters' Notice, and deposit such Merchants Shareholder's stock
certificates in accordance with the terms of the Dissenters' Notice.
A Merchants Shareholder who demands payment and deposits such Merchants
Shareholder's stock certificates in accordance with the previous paragraph
retains all other rights of a Merchants Shareholder until those rights are
canceled or modified by the consummation of the Merger or the taking of any
other proposed corporate action.
A Merchants Shareholder who does not demand payment or deposit such
Merchants Shareholder's stock certificates where required, in each case by the
date set forth in the Dissenters' Notice, is not entitled to payment for such
Merchants Shareholder's shares of Merchants Common Stock.
As soon as the Merger is effective, or upon receipt of a Payment
Demand, BancorpSouth is required to pay each dissenting Merchants Shareholder
who has complied with such Merchants Shareholder's obligations under Mississippi
law the amount BancorpSouth estimates to be the fair value of such Merchants
Shareholder's shares of Merchants Common Stock, plus accrued interest. This
payment must be accompanied by the following:
1. Merchants' consolidated statement of financial condition as of the
end of a fiscal year ending not more than 16 months before the
date of payment, an income statement for that year, a statement
of changes in stockholders' equity for the year, and the latest
available interim financial statements, if any;
2. A statement of BancorpSouth's estimate of the fair value of the
shares of Merchants Common Stock;
3. An explanation of how the interest was calculated;
4. A statement of the dissenting Merchants Shareholder's right to
demand payment under MBCA Section 13.28; and
5. A copy of Article 13 of the MBCA.
BancorpSouth may elect to withhold payment from a dissenter who was not
the beneficial owner of the shares of Merchants Common Stock on the date set
forth in the Dissenters' Notice as the date of the first announcement to news
media or to the Merchants Shareholders of the terms of the proposed Merger.
To the extent BancorpSouth elects to withhold payment as described in
the immediately preceding paragraph, after consummation of the Merger,
BancorpSouth shall estimate the fair value
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of the shares of Merchants Common Stock, plus accrued interest, and shall pay
this amount to each dissenting Merchants Shareholder who agrees to accept it in
full satisfaction of such Merchants Shareholder's demand. BancorpSouth shall
send with its offer a statement of its estimate of the fair value of the shares
of Merchants Common Stock, an explanation of how the interest was calculated and
a statement of the dissenting Merchants Shareholder's right to demand payment
pursuant to MBCA Section 13.28.
A dissenting Merchants Shareholder may notify BancorpSouth in writing
of such Merchants Shareholder's estimate of the fair value of his or her shares
of Merchants Common Stock and amount of interest due, and demand payment of such
estimate (less any payments previously made) or reject BancorpSouth's offer and
demand payment of the fair value of such shares and interest due, if:
1. The dissenting Merchants Shareholder believes that the amount
paid or offered by BancorpSouth is less than the fair value of
such shares or that the interest due is incorrectly calculated;
2. BancorpSouth fails to make payment within 60 days after the date
set forth demanding payment; or
3. BancorpSouth, having failed to take the proposed corporate action,
does not return the deposited stock certificates within 60 days
after the date set for demanding payment.
However, a dissenting Merchants Shareholder waives the right to demand such
payment unless such shareholder notifies BancorpSouth of such demand in writing
within 30 days after BancorpSouth makes or offers payment for such Merchant
Shareholder's shares of Merchants Common Stock.
If a demand for payment remains unsettled, BancorpSouth must commence a
proceeding within 60 days after receiving the Payment Demand and petition the
court to determine the fair value of the shares of Merchants Common Stock and
accrued interest. If BancorpSouth does not commence this proceeding within this
60-day period, it shall pay each dissenting Merchants Shareholder whose demand
remains unsettled the amount demanded.
BancorpSouth must commence this proceeding in the chancery court of
Warren County, Mississippi (the "Chancery Court"). BancorpSouth must make all
dissenting Merchants Shareholders whose demands remained unsettled parties to
the proceeding and all parties must be served with a copy of the petition. The
Chancery Court may appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers shall
have the powers described in the order appointing them, or in any amendment to
it. Dissenting Merchants Shareholders are entitled to the same discovery rights
as parties to other civil litigation.
Each dissenting Merchants Shareholder made a party to the proceeding is
entitled to judgment for the following:
1. The amount, if any, by which the Chancery Court finds the fair
value of such Merchants Shareholder's shares of Merchants Common
Stock, plus interest, exceeds the amount paid by BancorpSouth, or
2. The fair value, plus accrued interest, of such Merchants
Shareholder's after-acquired shares for which BancorpSouth elected
to withhold payment under MBCA Section 13.27.
The Chancery Court in an appraisal proceeding shall determine all costs
of the proceeding including the reasonable compensation and expense of
appraisers appointed by the Chancery Court. The Chancery Court shall assess
these costs against BancorpSouth, except that the Chancery Court
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may assess costs against all or some of the dissenting Merchants Shareholders,
in amounts the Chancery Court finds equitable, to the extent the court finds the
dissenting Merchants Shareholders acted arbitrarily, vexatiously or not in good
faith in demanding payment.
The Chancery Court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
1. Against BancorpSouth and in favor of any and all dissenting
Merchants Shareholders if the court finds that BancorpSouth did
not substantially comply with the requirements of MBCA Sections
13.20 through 13.28, or
2. Against either BancorpSouth or a dissenting Merchants Shareholder,
in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously or not in good faith with respect to the
rights provided by Article 13 of the MBCA.
If the Chancery Court finds that the services of counsel for any
dissenting Merchants Shareholder were of substantial benefit to other dissenting
Merchants Shareholders similarly situated and that the fees for those services
shall not be assessed against BancorpSouth, the Chancery Court may award to
those counsel reasonable fees to be paid out of the amounts awarded the
dissenting Merchants Shareholders who were benefited.
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THE MERGER
DESCRIPTION OF THE MERGER
At the effective time of the Merger (the "Effective Time"), Merchants
will merge into BancorpSouth, the separate corporate existence of Merchants will
cease, and BancorpSouth will be the surviving corporation (the "Surviving
Corporation") and will continue to exist as a Mississippi corporation. In
addition, Merchants Bank will merge into BancorpSouth Bank, the separate
existence of Merchants Bank will cease, and BancorpSouth Bank will be the
surviving bank (the "Bank Merger").
Subject to the satisfaction or waiver of certain conditions set forth
in the Merger Agreement, the Merger will become effective upon the filing of
articles of merger (the "Articles of Merger") in the offices of the Secretary of
State of the State of Mississippi in accordance with the MBCA, and the Bank
Merger will become effective upon the filing of articles of merger in the
offices of the Mississippi Department of Banking and Consumer Finance (the
"Mississippi Banking Department"). See "THE MERGER AGREEMENT--Conditions to the
Merger." The Merger will have the effects set forth in Sections 79-4-11.01 and
81-5-85 of the Mississippi Code. BancorpSouth's Amended and Restated Articles of
Incorporation and Bylaws as in effect at the Effective Time will be those of the
Surviving Corporation.
At the Effective Time, automatically by virtue of the Merger and
without any action on the part of any party or Merchants Shareholder, each share
of Merchants Common Stock (excluding shares of Merchants Common Stock with
respect to which dissenters' rights have been properly demanded in accordance
with Article 13 of the MBCA ("Dissenting Shares"), or held by Merchants or any
of its subsidiaries or by Merchants or any of its subsidiaries, in each case,
other than shares held in a fiduciary capacity ("Trust Account Shares") or in
respect of a debt previously contracted ("DPC Shares")) issued and outstanding
immediately prior to the Effective Time will become and be converted into the
right to receive 3.768 (the "Exchange Ratio") shares of Common Stock, $2.50 par
value per share (the "BancorpSouth Common Stock"), of BancorpSouth, provided
that if, before the Effective Time, the shares of BancorpSouth Common Stock are
changed into a different number or class of shares due to any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
if a stock dividend is declared on the shares of Merchants Common Stock with a
record date prior to the Effective Time, the Exchange Ratio will be adjusted
accordingly.
The market price of BancorpSouth Common Stock is expected to fluctuate
between the date of this Prospectus Supplement/Proxy Statement and the date on
which the Merger is consummated and thereafter. Because the Exchange Ratio is
fixed and because the market price of BancorpSouth Common Stock is subject to
fluctuation, the value of the shares of BancorpSouth Common Stock that Merchants
Shareholders will receive in the Merger may increase or decrease prior to the
Merger. For further information concerning the historical market prices of
BancorpSouth Common Stock and Merchants Common Stock, see "PRICE RANGE OF COMMON
STOCK AND DIVIDENDS." No assurance can be given concerning the market price of
BancorpSouth Common Stock before or after the Effective Time.
At the Effective Time, Merchants Shareholders, other than those who
perfect dissenters' rights under the MBCA (see "MERCHANTS SPECIAL MEETING--
Dissenters' Rights"), will cease to be, and will have no rights as, Merchants
Shareholders, other than to receive the consideration to be issued to Merchants
Shareholders in the Merger (the "Merger Consideration"). After the Effective
Time, there will be no transfers on the stock transfer books of Merchants of
shares of Merchants Common Stock. If, after the Effective Time, Merchants
Certificates (as defined herein) are presented for transfer to SunTrust Bank,
Atlanta (the "Exchange Agent"), they will be canceled and exchanged for
certificates representing shares of BancorpSouth Common Stock as provided in the
Merger Agreement.
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In addition, at the Effective Time, all employee stock options to
purchase shares of Merchants Common Stock (each, a "Merchants Employee Stock
Option") that are then outstanding and unexercised will cease to represent
rights to acquire shares of Merchants Common Stock and will be replaced by a
stock option issued under BancorpSouth's appropriate stock option plan. The
duration and other terms of the new option will be the same as the original
Merchants Employee Stock Option, except that all references to Merchants will be
deemed to be references to BancorpSouth. The number of shares of BancorpSouth
Common Stock purchasable upon exercise of such a Merchants Employee Stock Option
will be equal to the number of shares of Merchants Common Stock purchasable
under such Merchants Employee Stock Option immediately prior to the Effective
Time multiplied by the Exchange Ratio, and rounding down to the nearest whole
share. The per share exercise price under each such Merchants Employee Stock
Option will be adjusted by dividing such exercise price by the Exchange Ratio,
and rounding up to the nearest cent. However, any Merchants Employee Stock
Options that are "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") will be adjusted in a manner
consistent with Section 422(a) of the Code. In connection with the conversion of
the Merchants Employee Stock Options in the Merger, BancorpSouth will reserve
for issuance a sufficient number of shares of BancorpSouth Common Stock
necessary to satisfy Merchants' obligations with respect to the Merchants
Employee Stock Options.
At the Effective Time, all shares of Merchants Common Stock held by
Merchants, or by any of its subsidiaries, other than Trust Account Shares or DPC
Shares, will be canceled and will cease to exist, and no BancorpSouth Common
Stock or other consideration will be delivered in exchange for such shares. Also
at the Effective Time, all shares of BancorpSouth Common Stock held by Merchants
or its subsidiaries, other than Trust Account Shares or DPC Shares, will become
treasury stock and all other shares of BancorpSouth Common Stock outstanding as
of the Effective Time will remain outstanding. Further, Dissenting Shares will
not be converted into the right to receive, or be exchangeable for, the Merger
Consideration; instead, the holders of Dissenting Shares will be entitled to
payment of the appraised value of the Dissenting Shares in accordance with
Article 13 of the MBCA. Notwithstanding the foregoing, if any holder of
Dissenting Shares subsequently delivers a written withdrawal of such holder's
demand for appraisal thereof, or if any such holder fails to establish such
holder's entitlement to dissenters' rights under Article 13 of the MBCA, such
holder will forfeit the right to appraisal and such shares will be deemed to
have been converted into the right to receive, and to have become exchangeable
for, the Merger Consideration. See "MERCHANTS SPECIAL MEETING--Dissenters'
Rights."
BACKGROUND OF THE MERGER
In November 1997, Merchants' Executive Committee concluded that
Merchants should explore the feasibility of entertaining merger proposals, due
to the rapid changes in the financial services industry, the attractive prices
being paid for acquired banks, the challenges presented by Year 2000 issues and
the substantial investments in technology facing Merchants. Merchants retained
the law firm of Gerrish & McCreary, P.C. to assist in making this evaluation,
and after discussions with Gerrish & McCreary, P.C., decided to prepare
marketing materials which could be sent to institutions identified as likely to
be interested in acquiring Merchants. A special meeting of the Merchants Board
was held on January 19, 1998, at which a plan to sell Merchants was discussed
and finalized. At that meeting, the Merchants Board established an Acquisition
Committee consisting of Messrs. Howell N. Gage, Ernest G. Thomas and J. E.
Blackburn, Jr., each of whom are members of the Merchants Board, and authorized
the Acquisition Committee to oversee the sale of Merchants. Gerrish and
McCreary, P.C. was authorized to solicit acquisition proposals.
In January 1998, Gerrish and McCreary, P.C. contacted representatives
of BancorpSouth regarding its interest in a business combination with Merchants.
In addition, Gerrish and McCreary, P.C. contacted eight other potential
acquirers on behalf of Merchants. Five of these potential acquirers (including
BancorpSouth) expressed an interest in the proposed transaction, and were
provided a package of materials to review for purposes of submitting an
acquisition proposal.
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Four preliminary acquisition proposals were received from these
companies (including BancorpSouth), with offers ranging in amounts from 16 to 19
times Merchants' net income during 1997 and from 2.59 to 3.06 times Merchants'
book value at December 31, 1997. Based upon the Acquisition Committee's review
of these proposals, three of these companies were invited to perform a due
diligence review of Merchants, and two of them (including BancorpSouth) did so.
After these due diligence reviews were performed, firm offers were solicited
from these three potential acquirers.
Members of Merchants' Acquisition Committee visited with each of the
three potential acquirers to gain a more in-depth knowledge of the companies and
their respective banking philosophies. The Acquisition Committee met with the
chairman of the board and other executive management officials of each of the
three potential acquirers. After these visits and following a review of the
offers from each of the three potential acquirers, the Acquisition Committee
determined that the amount of BancorpSouth's offer was more than that of the
other two offers and that a combination with BancorpSouth would result in a
superior and more strategic fit for Merchants Shareholders, customers and
employees than a combination with either of the other two potential acquirers.
Based upon that determination, the Acquisition Committee resolved to undertake
further negotiations with BancorpSouth with the assistance of Gerrish &
McCreary, P.C.
On March 23, 1998, Mr. Aubrey B. Patterson, the Chairman and Chief
Executive Officer of BancorpSouth, contacted Mr. Howell N. Gage, the Chairman
and Chief Executive Officer of Merchants, to discuss the proposed transaction,
and on March 26, 1998, Mr. Patterson and Mr. Gage met to discuss the matter
further. On March 31, 1998, the members of Merchants' Acquisition Committee met
with Mr. Patterson and Mr. L. Nash Allen, Jr., the Chief Financial Officer of
BancorpSouth, at BancorpSouth's headquarters in Tupelo, Mississippi. During
early April 1998, Mr. Patterson engaged in further discussions with Mr. Gage and
other representatives of Merchants.
On April 10, 1998, BancorpSouth submitted a written merger proposal to
Merchants' counsel, and on April 22, 1998 representatives of BancorpSouth met
with representatives of Gerrish and McCreary, P.C. to discuss the proposal. At
the meeting, Merchants submitted a counter-proposal to BancorpSouth. On April
25, 1998, Mr. Patterson met with Mr. Gage and Mr. Thomas to discuss the merger
proposal, and the parties instructed their respective counsel to prepare
documentation for the transaction. The parties continued to discuss the proposed
transaction and its terms. On April 29, 1998, the Board of Directors of
BancorpSouth (the "BancorpSouth Board") approved the proposed merger with
Merchants. On May 2, 1998, a special meeting of the Merchants Board was held, at
which the Merchants Board approved the Merger and the proposed Merger Agreement.
Each of the parties signed the Merger Agreement on May 2, 1998.
REASONS FOR THE MERGER; RECOMMENDATION OF THE MERCHANTS BOARD
The BancorpSouth Board believes that Merchants' market areas are
comparable to certain of BancorpSouth's existing market areas. In addition, they
perceive that economies of scale and cost savings available through combining
administrative functions, and increased competitiveness resulting from combined
marketing efforts and budgets, should significantly enhance the operations and
financial results of BancorpSouth and BancorpSouth Bank. In addition, the
BancorpSouth Board believes that the Merger and Bank Merger should strengthen
Merchants Bank's ability (as a part of BancorpSouth Bank) to compete and be
successful in its existing markets, in that BancorpSouth Bank offers services
that are not currently available to customers of Merchants Bank and BancorpSouth
Bank possesses technology that is not currently possessed by Merchants Bank.
In reaching its determination to approve and adopt the Merger
Agreement, the Merchants Board consulted with Merchants' management and its
financial and legal advisors, and considered a number of factors. The following
is a discussion of the information and factors considered by the Merchants Board
in reaching this determination. This discussion is not intended to be exhaustive
but includes all of the material factors considered by the Merchants Board. In
the course of its deliberations with respect to the Merger, the Merchants Board
discussed the anticipated impact of the Merger on Merchants, Merchants
Shareholders and Merchants' various other constituencies, and no material
disadvantages expected to result from the Merger were identified during these
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discussions. In reaching its determination to approve and recommend the Merger,
the Merchants Board did not assign any relative or specific weights to the
factors considered in reaching such determination, and individual directors may
have given differing weights to different factors.
The following include the material factors considered by the Merchants Board:
1. The Merchants Board's review, based in part on presentations
by its financial advisor, legal counsel and Merchants'
management, of the business, operations, technology,
dividends, financial condition and earnings of BancorpSouth on
an historical and a prospective basis and of the combined
company on a pro forma basis, and the historical stock price
performance of BancorpSouth Common Stock and the potential
impact on the market value of BancorpSouth Common Stock
following the Merger;
2. The resulting relative interests of Merchants Shareholders in
the common stock of the combined company following the Merger;
3. The fact that the Merger would allow Merchants Shareholders to
become shareholders in a well-capitalized company, whose stock
is traded on the New York Stock Exchange with sufficient
trading volume to provide liquidity for Merchants
Shareholders;
4. The presentations of Southard Financial to the Merchants
Board, the financial information reviewed by Southard
Financial at the meetings of the Merchants Board on May 2,
1998, and the opinion of Southard Financial dated as of May 1,
1998, that, as of such date and based upon and subject to the
procedures followed, assumptions made, matters considered, and
limitations on the analyses undertaken, the Exchange Ratio was
fair from a financial point of view to Merchants Shareholders
(see "--Fairness Opinion");
5. The process conducted by Merchants' management and its counsel
in exploring and determining the potential value which could
be realized by Merchants Shareholders in a business
combination transaction, including the contacts between
Merchants and/or its counsel and certain bank holding
companies determined to be the most likely companies to be
both interested in and financially and otherwise capable of
engaging in a business combination transaction with
Merchants, the fact that each of such selected bank holding
companies which expressed interest in a business combination
transaction with Merchants was afforded an opportunity to
submit proposals for such a transaction to Merchants, the
terms of the proposals received by Merchants from such bank
holding companies and the fact that the indicated value of
the Exchange Ratio in the BancorpSouth proposal was higher
as of May 2, 1998 than the indicated values of the per share
consideration offered in the other proposals submitted to
Merchants (see "--Background of the Merger");
6. The terms of the Merger Agreement and the Merger, including
the amount and form of consideration to be received by
Merchants Shareholders in the Merger, and the expectation that
the Merger will be a tax-free transaction to Merchants,
Merchants Shareholders and BancorpSouth to the extent
Merchants Shareholders receive shares of BancorpSouth Common
Stock;
7. The current and prospective economic and competitive
environment facing the financial services industry generally,
and Merchants in particular, including the continued rapid
consolidation in the industry and the increasing importance of
operational scale and financial resources in maintaining
efficiency and remaining
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competitive over the long term and in being able to
capitalize on technological developments which significantly
impact industry competition;
8. The challenges presented to Merchants by Year 2000 issues and
the substantial investments in technology that would be
required to address those issues;
9. The general impact that the Merger could be expected to have
on the constituencies served by Merchants, including its
customers, employees and communities;
10. The anticipated cost savings, operating efficiencies and
opportunities for revenue enhancement available to the
combined company from the Merger, and the likelihood of the
foregoing being achieved following consummation of the Merger;
11. The fact that Mr. Howell N. Gage, Chairman and Chief Executive
Officer of Merchants, would serve as Chairman of
BancorpSouth Bank's advisory community bank board in
Vicksburg, Mississippi following the Merger and that Mr.
Joel H. Horton, President and Chief Operating Officer of
Merchants, would serve as President of BancorpSouth Bank's
community bank in Vicksburg, Mississippi following the
Merger. The Merchants Board also considered that Messrs.
Gage and Horton would enter into employment contracts with
BancorpSouth Bank and that the directors and officers of
Merchants might be deemed to have interests in the Merger
other than their interests generally as Merchants
Shareholders (see "--Interests of Certain Persons in the
Merger"); and
12. The terms of the Stock Option Agreement, dated as of May 2,
1998, by and between BancorpSouth and Merchants (the "Stock
Option Agreement"), including the risk that the Stock Option
Agreement might discourage third parties from offering to
acquire Merchants by increasing the cost of such an
acquisition, and recognizing that the execution of the Stock
Option Agreement was a condition to BancorpSouth's willingness
to enter into the Merger Agreement (see "THE MERGER AGREEMENT
--Stock Option Agreement").
THE MERCHANTS BOARD BELIEVES THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, MERCHANTS AND THE MERCHANTS SHAREHOLDERS. THE MERCHANTS BOARD
UNANIMOUSLY RECOMMENDS THAT MERCHANTS SHAREHOLDERS VOTE TO APPROVE AND ADOPT THE
MERGER AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY.
FAIRNESS OPINION
Merchants retained Southard Financial, a Memphis, Tennessee financial
valuation consulting firm, to render its opinion as to the fairness from a
financial point of view to the holders of Merchants Common Stock of the
consideration to be paid in the Merger. In connection with this engagement,
Southard Financial evaluated the financial terms of the Merger, but was not
asked to, and did not, recommend the specific exchange ratio between
BancorpSouth's and Merchants' respective common stocks. The consideration was
determined by BancorpSouth and Merchants through arm's-length negotiations.
Merchants did not place any limitation on the scope of Southard Financial's
investigation or review.
Southard Financial provided the Merchants Board with a fairness opinion
letter, dated May 1, 1998, and supporting documentation. That opinion was
subsequently updated pursuant to the Merger Agreement. The full text of the
updated opinion letter of Southard Financial, dated August 20, 1998, which sets
forth certain assumptions made, matters considered, and limitations on the
review performed is attached as Annex C. The summary of the fairness opinion of
Southard Financial set forth in this Prospectus Supplement/Proxy Statement is
qualified in its entirety by reference to the opinion letter.
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In arriving at its fairness opinion, Southard Financial conducted
interviews with officers of BancorpSouth and Merchants and reviewed the
documents indicated in the opinion letter. Southard Financial did not
independently verify the accuracy and/or the completeness of the financial and
other information in rendering its fairness opinion. Southard Financial did not,
and was not requested to, solicit third party indications of interest in
acquiring any or all of the assets of Merchants.
In connection with rendering its fairness opinion, Southard Financial
performed a variety of financial analyses, which are summarized below. Southard
Financial believes that its analyses must be considered as a whole and that
considering only selected factors could create an incomplete view of the
analyses and the process underlying the opinion. In its analyses, Southard
Financial made numerous assumptions, many of which are beyond the control of
BancorpSouth and Merchants. Any estimates contained in the analyses prepared by
Southard Financial are not necessarily indicative of future results or values,
which may vary significantly from such estimates. Estimates of values of
companies do not purport to be appraisals or necessarily reflect the prices at
which companies or their securities may actually be sold. None of the analyses
performed by Southard Financial was assigned a greater significance than any
other.
Under the Merger Agreement, each Merchants Shareholder will receive
3.768 shares of BancorpSouth Common Stock for each one share of Merchants Common
Stock. Based upon the Merger terms, the shares of BancorpSouth Common Stock to
be received by Merchants Shareholders had a value at June 30, 1998 of about 323%
of Merchants' book value, 21.0 times Merchants' trailing 12-month earnings
through June 30, 1998, and 28.4% of Merchants' consolidated assets at June 30,
1998. Based upon the review conducted by Southard Financial, the pricing for
Merchants Common Stock in the Merger compares favorably to transactions in
Mississippi during the past two years and represents a significant premium to
the most recent transaction prices for Merchants Common Stock. Southard
Financial concluded that the terms of the Merger pursuant to the Merger
Agreement was fair, from a financial viewpoint, to Merchants Shareholders.
In conjunction with the fairness opinion, Southard Financial also
provided the Merchants Board with the following analyses.
DIVIDEND YIELD ANALYSIS
In evaluating the impact of the proposed Merger on Merchants
Shareholders, Southard Financial reviewed the dividend paying histories of
Merchants and BancorpSouth. Based upon the Exchange Ratio, had the Merger been
consummated prior to January 1, 1997, Merchants Shareholders would have seen a
decrease in dividends. The dividend payout ratios of Merchants and BancorpSouth
are very similar. Therefore, the overall dividend impact on the Merger should be
positive for shareholders of Merchants over the long term assuming that
BancorpSouth continues dividend payments at or above current levels.
EARNINGS YIELD ANALYSIS
In evaluating the impact of the proposed Merger on Merchants
Shareholders, Southard Financial determined that Merchants Shareholders would
have seen a slight dilution in their share of earnings for the trailing 12-month
period had the Merger been consummated prior to June 30, 1998. Southard
Financial concluded that the long-term growth outlook for earnings growth is
better for BancorpSouth than for Merchants and expects the Merger to be slightly
accretive to earnings prospectively in 1998.
BOOK VALUE ANALYSIS
In evaluating the impact of the proposed Merger on Merchants
Shareholders, Southard Financial determined that the shareholders would have
seen an increase in the book value of their
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investment had the Merger been consummated prior to June 30, 1998. The favorable
impact on the book value of Merchants Common Stock reflects that the proposed
transaction is priced at about 323% of Merchants' book value at June 30, 1998
while shares of BancorpSouth Common Stock were trading at approximately 248% of
book value at June 30, 1998.
FUNDAMENTAL ANALYSIS
Southard Financial reviewed the financial characteristics of Merchants
and BancorpSouth with respect to profitability, capital ratios, liquidity, asset
quality and other factors. Southard Financial compared Merchants and
BancorpSouth to a universe of publicly traded banks and bank holding companies
and to peer groups prepared by the Federal Financial Institutions Examination
Council ("FFIEC"). Southard Financial found that the post-merger combined entity
will have capital ratios and profitability ratios near those of the public peer
group and the FFIEC peer group.
LIQUIDITY
Unlike Merchants Common Stock, shares of BancorpSouth Common Stock are
traded on the New York Stock Exchange. Further, BancorpSouth Common Stock is
followed by a number of analysts and has institutional investors. Finally,
except in the case of certain officers, directors and significant shareholders
of Merchants, shares of BancorpSouth Common Stock received in the Merger will be
freely tradable with no restrictions.
Southard Financial is a valuation consulting firm, specializing in the
valuation of closely held companies and financial institutions. Since its
founding in 1987, Southard Financial has provided approximately 2,000 valuation
opinions for clients in 43 states. Additionally, Southard Financial provides
valuation services for approximately 120 financial institutions annually. For
rendering its opinion, Southard Financial received a fee of $15,794.03,
including out of pocket expenses. Southard Financial has never been engaged
previously by Merchants or BancorpSouth, and neither Southard Financial nor its
principals own an interest in the securities of Merchants or BancorpSouth.
REGULATORY APPROVAL
Consummation of the Merger is conditioned on, among other things, the
receipt of approvals by governmental authorities required in connection with the
Merger ("Requisite Regulatory Approvals"), including approvals by the Federal
Deposit Insurance Corporation ("FDIC") and the Mississippi Banking Department.
BancorpSouth filed an application with the Mississippi Banking Department for
approval of the Bank Merger on _______________, 1998.
As a state non-member bank, BancorpSouth Bank must file an application
with the FDIC for approval of the Merger pursuant to Sections 18(c) and 18(d) of
the Federal Deposit Insurance Act. The FDIC may disapprove the application if it
finds that the Merger tends to create or result in a monopoly, substantially
lessens competition or would be in restraint of trade. BancorpSouth Bank filed
such application with the FDIC on July 10, 1998. Following approval of the
application by the FDIC, the United States Department of Justice would have an
additional 15 calendar days to submit any adverse comments with regard to the
Merger relating to competitive factors. Such approval is expected to be obtained
and the waiting period to have expired by _______, 1998.
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles ("GAAP"). The
unaudited pro forma financial information included in this Prospectus
Supplement/Proxy Statement reflects the Merger using the "pooling of interests"
method of accounting. See "SUMMARY--Comparative Unaudited Per Share Data" and
"Selected Financial Data."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal
income tax consequences of the Merger to Merchants Shareholders who hold
Merchants Common Stock as a capital asset. The summary is based on the Code,
Treasury regulations thereunder, and administrative rulings and court decisions
in effect as of the date hereof, all of which are subject to change at any time,
possibly with retroactive effect. This summary is not a complete description of
all of the consequences of the Merger and, in particular, may not address U.S.
federal income tax considerations applicable to shareholders subject to special
treatment under U.S. federal income tax law (including, for example, non-U.S.
persons, financial institutions, dealers in securities, insurance companies,
tax-exempt entities, holders who acquired Merchants Common Stock pursuant to the
exercise of an employee stock option or right or otherwise as compensation, and
holders who hold Merchants Common Stock as part of a hedge, straddle or
conversion transaction). In addition, no information is provided herein with
respect to the tax consequences of the Merger under applicable foreign, state or
local laws. MERCHANTS SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE EFFECTS OF
U.S. FEDERAL, STATE AND LOCAL, FOREIGN AND OTHER TAX LAWS.
In connection with the filing of the Registration Statement,
BancorpSouth has received an opinion of Waller Lansden Dortch & Davis, A
Professional Limited Liability Company, special counsel to BancorpSouth, dated
the date hereof, addressing the U.S. federal income tax consequences of the
Merger described below. Such opinion has been rendered on the basis of facts,
representations and assumptions set forth or referred to in such opinion which
are consistent with the expected state of facts existing at the Effective Time.
In rendering this opinion, such counsel has required and relied upon
representations and covenants, including those contained in certificates of
officers of Merchants and BancorpSouth. The opinion is to the effect that, for
U.S. federal income tax purposes:
1. The Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code;
2. No gain or loss will be recognized by BancorpSouth or
Merchants as a result of the Merger;
3. No gain or loss will be recognized by the Merchants
Shareholders who exchange all of their Merchants Common Stock
solely for BancorpSouth Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional
share interest in BancorpSouth Common Stock); and
4. The aggregate tax basis of the BancorpSouth Common Stock
received by Merchants Shareholders who exchange all of their
Merchants Common Stock solely for BancorpSouth Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Merchants Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
Merchants' obligation to consummate the Merger is conditioned upon the
receipt of an opinion of Gerrish & McCreary, P.C., and BancorpSouth's obligation
to consummate the Merger is conditioned upon the receipt of an opinion of Waller
Lansden Dortch & Davis, A Professional Limited Liability Company, in each case
dated as of the Effective Time, opining as to the same U.S. federal income tax
consequences discussed in the immediately preceding paragraph and as further
described under the caption "THE MERGER AGREEMENT--Conditions to the Merger."
None of the tax opinions to be delivered to the parties in connection with the
Merger as described herein are binding on the Internal Revenue Service (the
"IRS") or the courts, and the parties do not intend to request a ruling from the
IRS with respect to the Merger. Accordingly, there can be no assurance that the
IRS
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will not challenge the conclusions reflected in such opinions or that a
court will not sustain such challenge.
Based upon the current ruling position of the IRS, generally cash
received by a Merchants Shareholder in lieu of a fractional share interest in
BancorpSouth Common Stock will be treated as received in redemption of such
fractional share interest, and a Merchants Shareholder should generally
recognize capital gain or loss for federal income tax purposes measured by the
difference between the amount of cash received and the portion of the tax basis
of the share of Merchants Common Stock allocable to such fractional share
interest. Such gain or loss should be a long-term capital gain or loss if the
holding period for such share of Merchants Common Stock is greater than one year
at the Effective Time. Generally, in the case of individual Merchants
Shareholders, such capital gain will be taxed at a maximum rate of 20% (or 10%,
if the gain would be taxed at 15% if it were treated as ordinary income) if such
Merchants Shareholder's holding period is more than one year. The holding period
of a share of BancorpSouth Common Stock received in the Merger (including a
fractional share interest deemed received and redeemed as described above) will
include the holder's holding period in the Merchants Common Stock surrendered in
exchange therefor.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Merchants' management and the Merchants Board may be
deemed to have certain interests in the Merger that are in addition to their
interests as Merchants Shareholders generally. The Merchants Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
At _________, 1998, the directors and executive officers of Merchants
beneficially owned an aggregate of 223,678 shares of Merchants Common Stock and,
based upon the Exchange Ratio of 3.768 and assuming such shares are owned at the
Effective Time, would receive an aggregate of approximately 842,819 shares of
BancorpSouth Common Stock upon consummation of the Merger.
Mr. Howell N. Gage, who is Merchants' Chairman and Chief Executive
Officer, will become Chairman of BancorpSouth Bank's advisory community bank
board in Vicksburg, Mississippi after the Merger. Mr. Joel H. Horton, who is
Merchants' President and Chief Operating Officer, will become President of
BancorpSouth Bank's community bank in Vicksburg, Mississippi after the Merger.
Both Messrs. Gage and Horton have entered into employment agreements with
BancorpSouth Bank effective upon completion of the Merger.
COMPARISON OF RIGHTS OF SHAREHOLDERS
At the Effective Time, Merchants Shareholders will automatically become
BancorpSouth Shareholders (except for Merchants Shareholders who exercise
dissenters' rights). BancorpSouth is a Mississippi corporation governed by
provisions of the MBCA and BancorpSouth's Amended and Restated Articles of
Incorporation and Bylaws. Merchants is a Mississippi corporation governed by
provisions of the MBCA and Merchants' Articles of Incorporation and Bylaws. See
"COMPARISON OF RIGHTS OF SHAREHOLDERS."
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of BancorpSouth Common Stock issuable to Merchants
Shareholders upon consummation of the Merger have been registered under the
Securities Act of 1933 (the "Securities Act"). Such securities may be traded
freely without restriction by those shareholders who are not deemed to be
"affiliates" of Merchants or BancorpSouth, as that term is defined in the rules
promulgated under the Securities Act.
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Shares of BancorpSouth Common Stock received by those Merchants
Shareholders who are deemed to be affiliates of Merchants at the time of the
Merchants Special Meeting may be resold without registration under the
Securities Act only as permitted by Rule 145 under the Securities Act or as
otherwise permitted thereunder. Securities and Exchange Commission (the
"Commission") guidelines regarding qualifying for the "pooling of interests"
method of accounting also limit sales of shares of the acquiring and acquired
company by affiliates of either company in a business combination. Commission
guidelines also indicate that the "pooling of interests" method of accounting
generally will not be challenged on the basis of sales by affiliates of the
acquiring or acquired company if such affiliates do not dispose of any of the
shares of the corporation they own, or shares of a corporation they receive in
connection with a merger, during the period beginning 30 days before the merger
is consummated and ending when financial results covering at least 30 days of
post-merger operations of the combined companies have been published.
Each of BancorpSouth and Merchants has agreed in the Merger Agreement
to use its reasonable best efforts to cause each person who is an affiliate (for
purposes of Rule 145 under the Securities Act and for purposes of qualifying the
Merger for "pooling of interests" accounting treatment) of such party to deliver
to the other party a written agreement intended to ensure compliance with the
Securities Act (in the case of Merchants' affiliates) and to preserve the
ability of the Merger to be accounted for as a "pooling-of-interests."
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THE MERGER AGREEMENT
The following summary of certain terms and provisions of the Merger
Agreement is qualified in its entirety by reference to the Merger Agreement,
which is incorporated herein by reference and, with the exception of certain
exhibits and schedules thereto, is attached as Annex A to this Prospectus
Supplement/Proxy Statement.
EXCHANGE OF CERTIFICATES
At or prior to the Effective Time, BancorpSouth will deposit, or will
cause to be deposited, with the Exchange Agent, certificates representing the
shares of BancorpSouth Common Stock (collectively, "BancorpSouth Certificates")
and cash to be paid in lieu of fractional shares to which a holder of
certificates formerly representing Merchants Common Stock ("Merchants
Certificates") would otherwise be entitled based on the Exchange Ratio (such
cash and BancorpSouth Certificates, together with any dividends or distributions
with respect thereto, the "Exchange Fund").
As soon as practicable, but in no event more than three business days
after the date on which the Effective Time occurs (the "Effective Date"), the
Exchange Agent will mail to each holder of record of a Merchants Certificate a
letter of transmittal for use in exchanging such Merchants Shareholder's
Merchants Certificates for the Merger Consideration. Upon surrender of a
Merchants Certificate for exchange and cancellation to the Exchange Agent,
together with a duly executed letter of transmittal, the holder of a Merchants
Certificate will be entitled to receive in exchange for such Merchants
Certificate a certificate representing the number of whole shares of
BancorpSouth Common Stock ("BancorpSouth Certificate") to which such holder has
become entitled pursuant to the Merger Agreement and a check in the amount of
cash in lieu of fractional shares, if any, of BancorpSouth Common Stock to which
such holder has become entitled pursuant to the Merger Agreement. Merchants
Certificates so surrendered will immediately be canceled. No interest will be
paid or accrued on any cash to be paid upon such surrender, whether in lieu of
fractional shares of BancorpSouth Common Stock or with respect to unpaid
dividends or distributions thereon.
MERCHANTS SHAREHOLDERS SHOULD NOT SEND IN THEIR MERCHANTS CERTIFICATES
UNTIL THEY RECEIVE THE TRANSMITTAL MATERIALS FROM THE EXCHANGE AGENT.
No fractional shares of BancorpSouth Common Stock, and no BancorpSouth
Certificates or scrip representing such fractional shares, will be issued in the
Merger, nor will any dividend or distribution be payable on or with respect
thereto, nor will any such fractional share entitle the holder thereof to vote
or to any other rights of a BancorpSouth Shareholder. Instead, BancorpSouth will
pay to each Merchants Shareholder who would otherwise be entitled to a
fractional share of BancorpSouth Common Stock (after taking into account all
Merchants Certificates delivered by such Merchants Shareholder) an amount in
cash to be paid in lieu of fractional shares (without interest) determined by
multiplying such fraction by $22.5625.
Any part of the Exchange Fund that remains unclaimed by Merchants
Shareholders for 12 months after the Effective Time will be paid to
BancorpSouth, and after such time Merchants Shareholders may look only to
BancorpSouth for payment of the Merger Consideration and unpaid dividends and
distributions, if any, on Merchants Common Stock deliverable in respect of each
share of Merchants Common Stock held by such holder, in each case, without
interest thereon. None of Merchants, BancorpSouth or the Exchange Agent, or any
other person, will be liable to any former Merchants Shareholder for any amounts
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
In the event that any Merchants Certificate is lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the same, and if required by BancorpSouth, the posting of a bond by such person
in an amount that BancorpSouth or the Exchange Agent may direct as indemnity
against any claim that may be made against it with respect to such Merchants
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Certificate, the Exchange Agent will issue in exchange for such Merchants
Certificate the shares of BancorpSouth Common Stock and cash in lieu of
fractional shares deliverable in respect thereof.
No dividends or other distributions with respect to BancorpSouth Common
Stock declared after the Effective Time and payable to BancorpSouth Shareholders
of record will be paid to the holder of any unsurrendered Merchants Certificate
until the holder thereof surrenders such Merchants Certificate in accordance
with the Merger Agreement. After the proper surrender of a Merchants
Certificate, the record holder thereof will be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of BancorpSouth Stock
represented by such Merchants Certificate.
CONDITIONS TO THE MERGER
The obligations of Merchants and BancorpSouth to consummate the Merger
are subject to the satisfaction (or waiver, where legally allowed), at or prior
to the Effective Time, of a number of conditions, which are set forth in the
Merger Agreement. These conditions include approval of the Merger Agreement by
Merchants Shareholders, receipt of the Requisite Regulatory Approvals, the
absence of any legal prohibition to consummation of the Merger, accuracy of the
parties' representations and performance of the parties' obligations under the
Merger Agreement.
In addition, the obligation of each party to consummate the Merger is
conditioned upon receipt of an opinion from their respective legal counsel to
the effect that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and that, accordingly, for federal income
tax purposes:
1. No gain or loss will be recognized by BancorpSouth or Merchants
as a result of the Merger;
2. No gain or loss will be recognized by Merchants Shareholders
who exchange all of their Merchants Common Stock solely for
BancorpSouth Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest
in BancorpSouth Common Stock); and
3. The aggregate tax basis of the BancorpSouth Common Stock
received by Merchants Shareholders who exchange all of their
Merchants Common Stock solely for BancorpSouth Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Merchants Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional share
interest for which cash is received).
Further, the obligation of Merchants to consummate the Merger is
conditioned upon receipt by Merchants of an opinion from Southard Financial to
the effect that as of the date of the opinion and based upon and subject to the
matters set forth in the opinion, the Merger is fair to the Merchants
Shareholders from a financial point of view. See "THE MERGER--Fairness Opinion."
BancorpSouth and Merchants cannot guarantee that the Requisite
Regulatory Approvals will be obtained or that all of the other conditions
precedent to the Merger will be satisfied or, where legally permitted, waived by
the party permitted to do so.
TERMINATION OF THE MERGER AGREEMENT
The Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger by the Merchants
Shareholders, as set forth in the Merger Agreement, including by mutual consent
of BancorpSouth and Merchants. In addition, the Merger Agreement may be
terminated by either party if a governmental entity issues a final order
prohibiting the
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Merger or (subject to a 60 day waiting period) rejects an application for a
Requisite Regulatory Approval, the Merger is not consummated on or before March
31, 1999, Merchants Shareholders fail to approve the Merger or the other party
materially breaches its representations or covenants set forth in the Merger
Agreement and fails to cure that breach within the prescribed time limit.
BancorpSouth may terminate the Merger Agreement if the Merchants Board has
withdrawn, modified or changed in a manner adverse to BancorpSouth its approval
of, or recommendation to Merchants Shareholders that the Merchants Shareholders
approve, the Merger Agreement and the transactions contemplated thereby.
In the event of termination of the Merger Agreement pursuant to its
terms, the Merger Agreement will become void and have no effect, except with
respect to the parties' obligations with respect to confidential information and
expenses set forth in the Merger Agreement and except that termination will not
relieve or release a breaching party from liability or damages for its willful
breach of the Merger Agreement.
CONDUCT OF BUSINESS PRIOR TO THE MERGER AND OTHER COVENANTS
In the Merger Agreement, each of the parties agreed that, prior to the
Effective Time and except as expressly contemplated or permitted by the Merger
Agreement or the Stock Option Agreement or with the prior written consent of the
other party, such party and its subsidiaries will carry on their businesses in
the ordinary course consistent with past practice. Each of the parties also
agreed to refrain from engaging in, or permitting its subsidiaries to engage in,
certain activities which are described in the Merger Agreement.
Merchants agreed to refrain from issuing or acquiring its capital
stock, issuing any options or other securities convertible into or exchangeable
for its capital stock, amending its articles of incorporation or bylaws, making
any capital expenditure in excess of $100,000, engaging in a material
acquisition of another business, adopting or amending any employee benefit plan
or compensation arrangement, incurring any indebtedness, disposing of any
material assets or entering into, renewing, amending or terminating any material
contract.
In addition, Merchants agreed that, prior to the Effective Time, it and
its subsidiaries will not authorize or permit any of their officers, directors,
employees or agents to, directly or indirectly, solicit, initiate, facilitate,
encourage or participate in any inquiries, proposals, discussions or
negotiations relating to a tender or exchange offer, merger, consolidation or
other business combination involving Merchants or any of its subsidiaries or the
acquisition of a substantial portion of the capital stock or assets of Merchants
or any of its subsidiaries (a "Takeover Proposal"). Merchants agreed to
immediately cease and terminate any existing activities, discussions or
negotiations previously conducted with any parties other than BancorpSouth with
respect to any Takeover Proposal, and to notify BancorpSouth immediately if
Merchants receives any Takeover Proposal, inquiry or request for information.
Merchants also agreed to promptly inform BancorpSouth in writing of all of the
relevant details with respect to any Takeover Proposal or request for
information, including the material terms and conditions and the identity of the
person or group making such request or proposal, and to keep BancorpSouth fully
informed of the status and details (including amendments or proposed amendments)
of any such request or Takeover Proposal.
Merchants further agreed that it would not provide third parties with
any nonpublic information relating to any such Takeover Proposal; however,
Merchants may communicate information about any such Takeover Proposal to
Merchants Shareholders if, in the judgment of the Merchants Board, such
communication is required under applicable law. In addition, Merchants and its
officers, directors, employees or agents may provide such information and
participate in such discussions or negotiations if the Merchants Board has
determined that the failure to do so could cause the members of the Merchants
Board to breach their fiduciary duties under applicable laws.
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The Merger Agreement also contains certain other agreements relating to
the conduct of the parties prior to the Effective Time, including, among other
things, those requiring each party:
1. To use reasonable best efforts to promptly apply for and
obtain all consents and approvals of third parties and
governmental entities required to consummate the transactions
contemplated by the Merger Agreement;
2. Subject to certain limitations regarding privileged or
confidential information and otherwise, to afford to the other
party and its officers, employees, accountants, counsel and
other representatives access during normal business hours to
all of such party's properties, books, contracts, commitments,
records, officers, employees, accountants and counsel and make
available all information concerning its business, properties
and personnel as such other party may reasonably request;
3. To use such party's reasonable best efforts to cause each
director, executive officer and other person who is an
"affiliate" of such party for purposes of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment, to deliver to the
other party to the Merger as soon as practicable a written
agreement intended to ensure compliance with the Securities
Act (in the case of Merchants' affiliates) and to preserve the
ability of the Merger to be accounted for as a
"pooling-of-interests";
4. To use and cause its subsidiaries to use reasonable best
efforts to take all actions required to comply with any legal
requirements in connection with the Merger and, subject to the
conditions set forth in the Merger Agreement, to consummate
the Merger; and
5. To coordinate the payment of dividends on Merchants Common
Stock and BancorpSouth Common Stock such that Merchants
Shareholders and BancorpSouth Shareholders will not receive
more than one dividend, or fail to receive one dividend, for
any single calendar quarter due to the exchange of
BancorpSouth Common Stock for Merchants Common Stock.
Merchants also agreed to call and hold the Merchants Special Meeting
and to recommend to Merchants Shareholders, through the Merchants Board, the
Merger Agreement and the transactions contemplated thereby.
BancorpSouth also agreed that employees of Merchants ("Merchants
Employees") will be eligible to participate in BancorpSouth's employee benefit
plans in a manner comparable to that of similarly situated employees of
BancorpSouth or BancorpSouth Bank, with prior service with Merchants to be
treated as service with BancorpSouth for purposes of determining eligibility to
participate, vesting and entitlement to benefits (other than for accrual of
pension benefits and 401(k) plan eligibility), satisfaction of any waiting
periods, evidence of insurability requirements or application of any
pre-existing condition limitations, except to the extent that such treatment
would result in a duplication or increase in benefits. BancorpSouth's employee
benefit plans are to waive any pre-existing condition limitations to the same
extent as waived under the applicable Merchants' employee benefit plan.
Merchants Employees are to be given credit for amounts paid under a Merchants
employee benefit plan period for purposes of applying deductibles, co-payments
and out-of-pocket maximums as though such amounts had been paid in accordance
with the terms and conditions of BancorpSouth's employee benefit plan.
At the Effective Time, BancorpSouth and its subsidiaries are to assume
and honor in accordance with their terms all employment, severance and other
compensation agreements and arrangements existing prior to May 2, 1998 between
Merchants or its subsidiaries and any director, officer or employee thereof that
were disclosed to BancorpSouth in the disclosure schedule attached
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to the Merger Agreement. BancorpSouth and Merchants agreed to cooperate and take
all reasonable actions after the Effective Time to effect the merger of any
Merchants' employee benefit plan that is intended to be qualified under Section
401(a) of the Code into BancorpSouth's appropriate tax-qualified retirement
plan, so that the merger of such Merchants plan satisfies the requirements of
Section 414(l) of the Code, unless the Merchants plan is not fully funded under
Section 412 of the Code and Section 302 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the merger of the plan would
jeopardize the tax-qualified status of a BancorpSouth plan.
In addition, BancorpSouth agreed to provide indemnification to the
officers, directors and employees of Merchants to the full extent permitted by
law from and after the Effective Time and to provide, for a period of three
years after the Effective Time, directors' and officers' liability insurance for
the directors and officers of Merchants to the maximum extent available at an
annual premium not to exceed 125% of the amount expended by Merchants as of the
date of the Merger Agreement. BancorpSouth also agreed to use its reasonable
best efforts to cause the shares of BancorpSouth Common Stock to be issued in
the Merger to be approved for listing on the New York Stock Exchange. Further,
BancorpSouth agreed that in the event the Merger does not occur by March 31,
1999 or the Merger Agreement is terminated, BancorpSouth will provide consulting
services, data processing and related computer support to Merchants in
connection with Merchants' "Year 2000" compliance program through December 31,
2000. These services, processing and support are to be provided on an
arms-length basis at their fair market value.
AMENDMENT OF THE MERGER AGREEMENT; WAIVER; EXPENSES
Subject to compliance with applicable law, the Merger Agreement may be
amended by the parties thereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the Merchants Shareholders;
provided, however, that after any approval of the transactions contemplated by
the Merger Agreement by the Merchants Shareholders, there may not be, without
further approval of such shareholders, any amendment of the Merger Agreement
which reduces the amount or changes the form of the Merger Consideration other
than as contemplated by the Merger Agreement. The Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties thereto.
Prior to the Effective Time, each of the parties to the Merger
Agreement may, to the extent legally allowed and only in a written instrument,
extend the time for the performance of any of the obligations or other acts of
the other party to the Merger Agreement, waive any inaccuracies in the
representations or warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement or waive
compliance with any of the agreements or conditions of the other party contained
in the Merger Agreement.
Each party to the Merger Agreement will bear all expenses incurred by
it in connection with the Merger Agreement and the transactions contemplated
thereby.
STOCK OPTION AGREEMENT
Concurrently with the execution of the Merger Agreement, BancorpSouth
and Merchants executed and delivered the Stock Option Agreement, pursuant to
which Merchants granted to BancorpSouth an option (the "Option") to purchase
from Merchants up to 148,150 shares of Merchants Common Stock (the "Option
Shares") (subject to adjustment in certain circumstances, but in no event to
exceed 19.9% of the shares of Merchants Common Stock issued and outstanding
immediately prior to exercise thereof), at a price of $63.00 per share.
Merchants approved and entered into the Stock Option Agreement as an inducement
to BancorpSouth to enter into the Merger Agreement. The Stock Option Agreement
is included as Annex D to this Prospectus
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<PAGE> 44
Supplement/Proxy Statement and this description is qualified in its entirety by
reference to the full text of such Agreement.
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreement may have
the effect of discouraging persons who might now or at any other time prior to
the Effective Time be interested in acquiring all of or a significant interest
in Merchants from considering or proposing such an acquisition, even if such
persons were prepared to offer to pay consideration to the Merchants
Shareholders which had a higher current market price than the shares of
BancorpSouth Common Stock to be received per share of Merchants Common Stock
pursuant to the Merger Agreement. The acquisition of Merchants could cause the
Option to become exercisable. The existence of the Option could significantly
increase the cost to a potential acquirer of acquiring Merchants compared to its
cost had the Stock Option Agreement and the Merger Agreement not been entered
into. Such increased cost might discourage a potential acquirer from considering
or proposing an acquisition or might result in a potential acquirer proposing to
pay a lower per share price to acquire Merchants than it might otherwise have
proposed to pay. The exercise or repurchase of the Option may prohibit any other
acquirer of Merchants from accounting for an acquisition thereof using the
"pooling of interests" accounting method for a period of two years.
The Stock Option Agreement provides for the purchase by BancorpSouth of
the Option Shares at an exercise price of $63.00 per share, payable in cash. The
Option Shares, if issued pursuant to the Stock Option Agreement, will in no
event exceed 19.9% of the Merchants Common Stock issued and outstanding without
giving effect to the issuance of any Merchants Common Stock subject to the
Option.
The number of shares of Merchants Common Stock subject to the Option
will be increased or decreased, as appropriate, to the extent that additional
shares of Merchants Common Stock are either (1) issued or otherwise become
outstanding (other than pursuant to the Stock Option Agreement) after May 2,
1998 or (2) redeemed, repurchased, retired or otherwise cease to be outstanding
after May 2, 1998, such that, after such issuance, the number of Option Shares
will continue to equal 19.9% of the shares of Merchants Common Stock then issued
and outstanding without giving effect to the issuance of any Merchants Common
Stock subject to the Option. In the event of any change in, or distributions in
respect of, the number of shares of Merchants Common Stock by reason of a stock
dividend, split-up, merger, recapitalization, combination, subdivision,
conversion, exchange of shares, distribution of or in respect of such Merchants
Common Stock that would be prohibited by the Merger Agreement, or similar
transaction, the type and number of Option Shares purchasable upon exercise of
the Option, and the option price, will also be adjusted in such a manner as will
fully preserve the economic benefits of the Option.
The Stock Option Agreement provides that BancorpSouth may exercise the
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined in Section 2(b) of the Stock Option Agreement) and
a Subsequent Triggering Event (as defined in Section 2(c) of the Stock Option
Agreement) have occurred prior to the occurrence of an Exercise Termination
Event (as defined in Section 2(a) of the Stock Option Agreement), provided that
BancorpSouth has sent to Merchants written notice of such exercise within 90
days following such Subsequent Triggering Event (subject to extension as
provided in the Stock Option Agreement). The terms "Initial Triggering Event"
and "Subsequent Triggering Event" generally relate to attempts by one or more
third parties to acquire a significant interest in Merchants. Any exercise of
the Option will be deemed to occur on the date such notice of exercise is sent.
As of the date of this Prospectus Supplement/Proxy Statement, BancorpSouth is
not aware that an Initial Triggering Event or Subsequent Triggering Event has
occurred.
Immediately prior to the occurrence of a Repurchase Event (as defined
in Section 7(d) of the Stock Option Agreement), (a) following a request of
BancorpSouth, delivered prior to an Exercise Termination Event (as defined in
Section 2(a) of the Stock Option Agreement), Merchants (or any
41
<PAGE> 45
successor thereto) will repurchase the Option from BancorpSouth at a price (the
"Option Repurchase Price") equal to the amount by which (x) the Market/Offer
Price (as defined in Section 7(a) of the Stock Option Agreement) exceeds (y) the
option exercise price, multiplied by the number of shares for which the Option
may then be exercised and (b) at the request of BancorpSouth from time to time,
delivered within 90 days of such occurrence (or such longer period as necessary
to obtain any required regulatory approvals or to avoid liability under Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
Merchants will repurchase such number of the Option Shares from BancorpSouth as
BancorpSouth designates at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated.
Within 90 days after the occurrence of a Subsequent Triggering Event
that occurs prior to an Exercise Termination Date (as defined in Section 2(a) of
the Stock Option Agreement), subject to extension as provided in the Stock
Option Agreement, BancorpSouth may request Merchants to prepare, file and keep
current with respect to the Option Shares, a registration statement with the
Commission. Merchants is required to use its reasonable best efforts to cause
such registration statement to become effective and then to remain effective for
180 days or such shorter time as may be reasonably necessary to effect such
sales or other disposition of Option Shares. BancorpSouth has the right to
demand two such registrations.
Neither BancorpSouth nor Merchants may assign any of its rights and
obligations under the Stock Option Agreement or the Option to any other person
without the express written consent of the other party, except that if a
Subsequent Triggering Event occurs prior to an Exercise Termination Event,
BancorpSouth, subject to the terms of the Stock Option Agreement, may assign, in
whole or in part, its rights and obligations thereunder, within 90 days (subject
to extension to obtain necessary regulatory approvals or to avoid liability
under Section 16(b) of the Exchange Act) of such Subsequent Triggering Event;
provided that until the date 15 days after the date on which the Board of
Governors of the Federal Reserve System ("Federal Reserve") approves an
application by BancorpSouth to acquire the Option Shares, BancorpSouth may not
assign its rights under the Option except in:
1. A widely dispersed public distribution;
2. A private placement in which no one party acquires the right to
purchase in excess of 2% of the voting shares of Merchants;
3. An assignment to a single party for the purpose of conducting
a widely dispersed public distribution on BancorpSouth's behalf;
or
4. Any other manner approved by the Federal Reserve.
Certain rights and obligations of Merchants under the Stock Option
Agreement are subject to receipt of required regulatory approvals. The approval
of the Federal Reserve is required for the acquisition by BancorpSouth of more
than 5% of the outstanding shares of Merchants Common Stock. Accordingly,
Merchants has included or will include in its applications with the Federal
Reserve a request for approval of the right of BancorpSouth to exercise its
rights under the Stock Option Agreement, including its right to purchase more
than 5% of the outstanding shares of Merchants Common Stock.
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<PAGE> 46
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
MARKET PRICES
MERCHANTS
There is no established trading market for shares of Merchants Common
Stock, which is inactively traded in private transactions. Therefore, reliable
information is not available about the prices at which shares of Merchants
Common Stock have been bought and sold. As of __________, 1998, Merchants Common
Stock was held of record by approximately 540 persons.
BANCORPSOUTH
BancorpSouth is listed on the New York Stock Exchange under the symbol
"BXS." As of __________, 1998, BancorpSouth Common Stock was held of record by
approximately ________ persons. The following table sets forth the high and low
sale prices for BancorpSouth Common Stock as reported on the New York Stock
Exchange since May 15, 1997 and as reported on the Nasdaq Stock Market prior to
May 15, 1997 for the periods indicated.
<TABLE>
<CAPTION>
HIGH (1) LOW (1)
-------- -------
<S> <C> <C> <C>
1998
- ----
First Quarter........................................ $24.0000 $20.6250
Second Quarter....................................... 23.0625 20.3125
Third Quarter (through August 5, 1998)............... 22.4375 19.0625
1997
- ----
First Quarter........................................ $15.0000 $13.25000
Second Quarter....................................... 14.7500 13.25000
Third Quarter........................................ 18.0000 14.50000
Fourth Quarter....................................... 24.1875 17.59375
1996
- ----
First Quarter........................................ $12.750 $11.2500
Second Quarter....................................... 12.875 10.6875
Third Quarter........................................ 12.000 10.7500
Fourth Quarter....................................... 14.250 11.8750
</TABLE>
--------------------
(1) Adjusted to reflect a two-for-one stock split of the BancorpSouth
Common Stock, effected in the form of a 100% stock dividend as of
May 15, 1998.
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<PAGE> 47
DIVIDENDS
The following table sets forth cash dividends declared per share of
BancorpSouth Common Stock and Merchants Common Stock, respectively, for the
periods indicated. The ability of either BancorpSouth or Merchants to pay
dividends to its respective shareholders is subject to certain restrictions.
<TABLE>
<CAPTION>
BANCORPSOUTH
DIVIDENDS
PER SHARE(1)
-----------
<S> <C> <C>
1998
----
First Quarter...................................... $ 0.11
Second Quarter..................................... 0.11
Third Quarter (through August 5, 1998)............. 0.11
1997
----
First Quarter...................................... $ 0.095
Second Quarter..................................... 0.095
Third Quarter...................................... 0.095
Fourth Quarter..................................... 0.110
1996
----
First Quarter...................................... $ 0.085
Second Quarter..................................... 0.085
Third Quarter...................................... 0.085
Fourth Quarter..................................... 0.095
</TABLE>
----------------
(1) Adjusted to reflect a two-for-one stock split of the BancorpSouth
Common Stock, effected in the form of a 100% stock dividend as of
May 15, 1998.
<TABLE>
<CAPTION>
MERCHANTS
DIVIDENDS
PER SHARE
---------
<S> <C> <C>
1998
----
First Quarter....................................... $ 0.300
Second Quarter...................................... 0.325
Third Quarter (through _____, 1998)................. --
1997
First Quarter....................................... $ 0.26
Second Quarter...................................... 0.30
Third Quarter....................................... 0.30
Fourth Quarter...................................... 1.05
1996
First Quarter....................................... $ 0.23
Second Quarter...................................... 0.26
Third Quarter....................................... 0.26
Fourth Quarter...................................... 0.74
</TABLE>
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<PAGE> 48
INFORMATION ABOUT MERCHANTS
GENERAL
Merchants is a one bank holding company which owns all of the
outstanding stock of Merchants Bank of Vicksburg, Mississippi. Merchants was
incorporated under the Mississippi Business Corporation Act on November 11,
1980, for the purpose of acquiring the outstanding stock of Merchants Bank and
related purposes. The acquisition of Merchants Bank by Merchants was
accomplished by means of an exchange offer to Merchants Bank shareholders which
was consummated in May 1982. Merchants Bank is the principal asset and the
principal source of revenue of Merchants. As of June 30, 1998, Merchants had
total assets of about $222.2 million, deposits of about $184.8 million and
shareholders' equity of about $19.7 million.
Merchants Bank, which was organized in 1886, operates four banking
locations in the Vicksburg, Mississippi area and has an office in Utica,
Mississippi and Edwards, Mississippi. In addition, Merchants Bank has a loan
production office in Jackson, Mississippi. In 1994, Merchants Bank changed its
legal status from a national bank to a state bank and officially started its
operations as a state bank on September 26, 1994. During 1985, Merchants
established Merchants Data Services, Inc. ("Merchants Data Services") as a
wholly-owned subsidiary. Merchants Data Services provided data processing
services for Merchants Bank, other banks and various individual accounts. Such
activities involved the collection, transcription, processing and storage of
banking or related economic data. In December, 1993, all of the assets of
Merchants Data Services were merged into Merchants Bank, and Merchants Data
Services was dissolved as of August 12, 1994.
During 1989, Merchants Bank established Merchants Credit Company
("Merchants Credit") as a wholly-owned subsidiary. Merchants Credit provided
small loans to individuals to finance consumer goods. Such activities involved
the making, booking and collecting of small consumer loans. Substantially all
the assets of Merchants Credit were sold during 1993 to an unrelated party. The
corporate entity continues to exist as a Mississippi corporation in good
standing. In late 1997, Merchants Bank created Merchants Insurance Agency, Inc.
as a wholly-owned subsidiary.
Merchants Bank is engaged in the general retail banking business, and
provides services to individuals, farmers and other small and medium-size
businesses. These services include conventional checking and savings accounts,
money market accounts, certificates of deposit, business loans, Master Card,
VISA and other consumer oriented financial services, and safe deposit and night
depository facilities. Merchants Bank offers ten automated teller machines at
seven locations (multiple machines at the casinos) in Vicksburg which provide
24-hour banking services to customers of Merchants Bank. Merchants Bank also
provides fiduciary services to individuals and businesses, and administers (as
trustee and in other fiduciary and representative capacities) personal trusts
and estates and business benefit plans. At December 31, 1997, Merchants Bank
ranked twenty-second in total assets of the 120 banks in the State of
Mississippi, and employed 145 employees, 117 of whom were full time. Merchants
Bank's primary service areas are in Warren and western Hinds Counties,
Mississippi.
COMPETITION
All phases of the banking industry in Merchants' market area are highly
competitive. Merchants Bank competes actively with national and state banks in
its service areas for deposits and loans, and trust and other financial services
business. In addition, Merchants Bank competes in its service areas with other
financial institutions, including personal loan companies, finance companies,
insurance companies, credit unions, and brokerage companies. The deregulation of
depository institutions as well as the increased ability of non-banking
financial institutions to provide services previously reserved for commercial
banks has intensified competition. Because
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<PAGE> 49
non-banking financial institutions are not subject to the same regulatory
restrictions as banks and bank holding companies, in many instances they may
operate with greater flexibility.
REGULATION AND SUPERVISION
Merchants, as a registered bank holding company, is subject to
regulation and examination by the Federal Reserve under the Bank Holding Company
Act of 1956, as amended (the "Bank Holding Company Act"), and is required to
file with the Federal Reserve an annual report and such additional reports as
the Federal Reserve may require. The Bank Holding Company Act generally
restricts activities of bank holding companies and their subsidiaries to banking
and the business of managing and controlling banks, and to other activities
which are determined by the Federal Reserve to be closely related to banking or
the management or control of banks. In addition, the Bank Holding Company Act
requires the prior approval of the Federal Reserve of the acquisition by
Merchants of more than 5% of the voting shares of any additional bank, and would
prohibit the acquisition by Merchants of a bank located outside the State of
Mississippi unless the laws of the state in which such a bank is located
specifically authorize such acquisition.
Merchants Bank is subject to supervision and examination by various
regulatory authorities. Merchants Bank, as a state chartered bank that is a
member of the Federal Reserve, is subject to state and federal banking laws and
the general supervision of the Federal Reserve, which conducts periodic
examinations of Merchants Bank. Merchants Bank is also subject to applicable
state banking department supervision and examination. Funds on deposit with
Merchants Bank are insured by, and Merchants Bank is subject to, regulation,
supervision and examination by the FDIC and is also subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the types of investments that may be made and types of services that may be
offered. Various consumer laws and regulations also affect the operations of
Merchants Bank.
HOLDING COMPANY LIABILITY
Federal Reserve policy requires bank holding companies to serve as a
source of financial strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to subsidiary banks during
periods of financial stress or adversity. A bank holding company also could be
liable under certain provisions of a new banking law for the capital
deficiencies of an undercapitalized bank subsidiary. In the event of a bank
holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the
trustee will be deemed to have assumed and is required to cure immediately any
deficit under any commitment by the debtor to any of the federal banking
agencies to maintain the capital of an insured depository institution, and any
claim for a subsequent breach of such obligation will generally have priority
over most other unsecured claims.
TRANSACTIONS WITH AFFILIATES
Merchants Bank is subject to restrictions under federal and state law
which limit a bank's extensions of credit to, and certain other transactions
with, affiliates. Such transactions by any subsidiary bank with any one
affiliate are limited in amount to 10% of such subsidiary bank's capital and
surplus and with all affiliates to 20% of such subsidiary bank's capital and
surplus. Furthermore, such loans and extensions of credit, as well as certain
other transactions, are required to be secured in accordance with specific
statutory requirements. The purchase of low quality assets from affiliates is
generally prohibited. Federal law also provides that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same, or
at least as favorable to the institution as those prevailing at the time for
comparable transactions involving other non-qualified companies or, in the
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<PAGE> 50
absence of comparable transactions, on terms and under circumstances, including
credit standards, that in good faith would be offered to, or would apply to,
non-affiliated companies.
Certain regulations require the maintenance of minimum risk-based
capital ratios, which are calculated with reference to risk-weighted assets,
which include on- and off-balance sheet exposures. The Federal Reserve has
established guidelines for both Merchants and Merchants Bank, which are
generally similar. The Federal Reserve has also adopted minimum leverage ratios
for bank holding companies and banks.
MINIMUM CAPITAL REQUIREMENTS
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. FDICIA substantially revised the
depository institution regulatory and funding provisions of the Federal Deposit
Insurance Act and revised several other federal banking statutes.
Among other things, FDICIA requires the federal banking regulators to
take prompt corrective action in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital categories:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under the regulations, a
"well capitalized" institution has a minimum total capital to total
risk-weighted assets ratio of at least 10%, a minimum Tier I capital to total
risk-weighted assets ratio of at least 6%, a minimum leverage ratio of at least
5% and is not subject to any written order, agreement, or directive. An
"adequately capitalized" institution has a total capital to total risk-weighted
assets ratio of at least 8%, a Tier I capital to total risk-weighted assets
ratio of at least 4% and a leverage ratio of at least 4% (3% if given the
highest regulatory rating and not experiencing significant growth), but does not
qualify as "well capitalized." An "undercapitalized" institution fails to meet
any one of the three minimum capital requirements. A "significantly
undercapitalized" institution has a total capital to total risk-weighted assets
ratio of less than 6%, a Tier I capital to total risk-weighted assets ratio of
less than 3% or a leverage ratio of less than 3%. A "critically
undercapitalized" institution has a leverage ratio of 2% or less. Under certain
circumstances, a "well capitalized," "adequately capitalized" or
"undercapitalized" institution may be required to comply with supervisory
actions as if the institution was in the next lowest capital category.
FDIC INSURANCE ASSESSMENTS
Merchants Bank is subject to FDIC deposit insurance assessments.
Pursuant to the FDICIA, the FDIC adopted a transitional risk-based system for
determining deposit insurance assessments that become effective on January 1,
1993. During 1997, the assessment rate on Bank Insurance Fund ("BIF") deposits
was $.0001256 per $100 of deposits. The rate on Savings Association Insurance
Fund ("SAIF") deposits was $.000628 per $100 of deposits for 1997. Merchants
Bank has SAIF deposits resulting from a savings and loan purchase during the
early 1990s.
EFFECTS OF MONETARY POLICY ON COMMERCIAL BANKING
All commercial banking operations are affected by the policies of
monetary authorities, including the Federal Reserve, and these policies change
from time to time. One of the functions of the Federal Reserve is to regulate
the national supply of bank credit in order to achieve economic results deemed
appropriate by the Federal Reserve, including efforts to combat unemployment,
recession, and inflation. Among the instruments of monetary policy used to
implement these objectives are: (i) open market operations in U.S. government
securities; (ii) changes in the discount rate on member bank borrowings and
(iii) changes in reserve requirements against member bank deposits. These are
used in varying combinations to influence overall growth of bank loans,
investments, and deposits.
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<PAGE> 51
The monetary policies of bank regulatory and other authorities have
affected the operating results of commercial banks in the past and are expected
to continue to do so in the future. In light of the changing conditions in the
national economy and in the money markets, as well as the effect of actions by
monetary and fiscal authorities, it is difficult to predict possible future
changes in interest rates, deposit levels, loan demand, or Merchants' business
and earning potential.
Various other legislation, including proposals to overhaul banking
regulatory systems and to limit the investments that a depository institution
may make with insured funds are from time to time introduced in Congress.
Merchants cannot determine the ultimate effect that the FDICIA and the
implementing regulations to be adopted thereunder, or any other potential
legislation, if enacted, would have upon its financial condition or results of
operations.
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<PAGE> 52
COMPARISON OF RIGHTS OF SHAREHOLDERS
Merchants Shareholders, whose rights are governed by the MBCA and
Merchants' Amended and Restated Articles of Incorporation (the "Merchants
Articles") and Amended and Restated Bylaws (the "Merchants Bylaws"), will become
BancorpSouth Shareholders upon consummation of the Merger. As such, the rights
of the former Merchants Shareholders will be governed by the MBCA and
BancorpSouth's Amended and Restated Articles of Incorporation (the "BancorpSouth
Articles") and Bylaws (the "BancorpSouth Bylaws").
While it is impractical to summarize all such differences, set forth
below are the material differences between the rights of Merchants Shareholders
under the Merchants Articles, the Merchants Bylaws and the MBCA and the rights
of BancorpSouth Shareholders under the BancorpSouth Articles, BancorpSouth
Bylaws and the MBCA.
VOTING RIGHTS; CUMULATIVE VOTING
Merchants. The Merchants Bylaws provide for cumulative voting by
Merchants Shareholders in elections of members of the Merchants Board. A
Merchants Shareholder may cumulate his or her votes and give one candidate for
director, or distribute among more than one candidate, a number of votes equal
to the number of directors to be elected times the number of shares of Merchants
Common Stock held by such Merchants Shareholder. In voting on matters other than
election of director on which a Merchants Shareholder is entitled to vote, such
as approval of the Merger Agreement, each share of Merchants Common Stock
entitles the holder to one vote.
BancorpSouth. The BancorpSouth Articles provide that each share of
issued and outstanding BancorpSouth Common Stock entitles the holder to one vote
on each matter with respect to which shareholders are entitled to vote. The
BancorpSouth Articles and Bylaws do not provide for cumulative voting by
shareholders.
CHANGE OF CONTROL
Merchants. The Merchants Articles and Merchants Bylaws do not provide
for the staggered election of members of the Merchants Board. Directors of
Merchants are elected annually for a one year term. Between meetings of
Merchants Shareholders, the Merchants Board may not increase the number of
directors of Merchants beyond the number of directors last elected by Merchants
Shareholders by more than two, if the number elected was 15 or less, or four, if
the number elected was 16 or more. Merchants has not adopted a shareholder
rights plan.
BancorpSouth. The BancorpSouth Articles contain several provisions
which make a change of control of BancorpSouth more difficult to accomplish
without the approval of the Board of Directors of BancorpSouth, including the
following:
1. The BancorpSouth Board is divided into three classes so that
approximately one-third of the directors will be subject to
reelection at each annual meeting of the shareholders of
BancorpSouth.
2. The BancorpSouth Bylaws provide that a vote of at least 80% of
the outstanding shares of BancorpSouth Common Stock is
required to increase the maximum number of members of the
BancorpSouth Board unless the BancorpSouth Board recommends
such an increase.
3. The BancorpSouth Articles provide that the affirmative vote of
the holders of not less than 80% of the outstanding shares of
voting stock of BancorpSouth is required in the
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<PAGE> 53
event that the BancorpSouth Board does not recommend to
BancorpSouth Shareholders a vote in favor of a merger or
consolidation of BancorpSouth with, or a sale or lease of
all or substantially all of the assets of BancorpSouth to,
any person or entity.
4. The affirmative vote of the holders of not less than 80% of
the outstanding shares of voting stock of BancorpSouth, as
well as at least 67% of the outstanding shares of voting stock
of BancorpSouth not held by a person owning or controlling 20%
or more of BancorpSouth's voting stock ("Controlling Person"),
shall be required for the approval of a merger, consolidation,
or sale or lease of all or substantially all of BancorpSouth's
assets with or to a Controlling Person, except in certain
instances.
5. BancorpSouth has implemented a shareholders' rights plan under
which a common stock purchase right ("BancorpSouth Right")
attaches to and trades with each share of BancorpSouth Common
Stock. Upon the occurrence of certain events, including the
acquisition of or tender for 20% or more of the outstanding
shares of BancorpSouth Common Stock by any person, then the
holders of each such purchase right (except those held by the
acquiring person) will be entitled to purchase a share of
BancorpSouth Common Stock at 50% of the then current market
price.
BOARD OF DIRECTORS
Merchants. The Merchants Board is to consist of five to 25 members, as
determined from time to time by the Merchants Board, and on the date of this
Prospectus Supplement/Proxy Statement consisted of 15 members. Between meetings
of Merchants Shareholders, the Merchants Board may not increase the number of
directors of Merchants beyond the number of directors last elected by Merchants
Shareholders by more than two, if the number elected was 15 or less, or four, if
the number elected was 16 or more. Vacancies in the Merchants Board may be
filled by the act of a majority of the remaining members of the Merchants Board.
BancorpSouth. The BancorpSouth Board is to consist of nine to 24
members, as determined from time to time by the BancorpSouth Board, and on the
date of this Prospectus Supplement/Proxy Statement consisted of 11 members. The
vote of at least 80% of the outstanding shares of BancorpSouth Common Stock is
required to increase the maximum number of members of the BancorpSouth Board
unless the BancorpSouth Board recommends such an increase. Any vacancy arising
from a director's early retirement from the BancorpSouth Board or an increase in
the number of members of the BancorpSouth Board is to be filled by vote of the
shareholders of BancorpSouth. The members of the BancorpSouth Board are divided
into three classes, with the classes elected for staggered three-year terms.
Each director of BancorpSouth must own at least $200 of par value of
unencumbered shares of BancorpSouth Common Stock.
REMOVAL OF DIRECTORS
Merchants. The Merchants Articles and Bylaws do not provide for removal
of directors.
BancorpSouth. The BancorpSouth Articles provide that a director of
BancorpSouth may be removed for cause by the affirmative vote of a majority of
the entire BancorpSouth Board, and may be removed by the BancorpSouth
Shareholders only for cause.
AUTHORIZED SHARES OF CAPITAL STOCK
Merchants. The Merchants Articles provide that Merchants is authorized
to issue up to 1,000,000 shares of Merchants Common Stock, which have a par
value of $5.00 per share.
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BancorpSouth. The BancorpSouth Articles provide that BancorpSouth may
issue up to 500,000,000 shares of BancorpSouth Common Stock, which have a par
value of $2.50 per share.
RIGHTS OF SHAREHOLDERS TO CALL SPECIAL MEETINGS
Merchants. The Merchants Bylaws provide that a special meeting of the
Merchants Shareholders may be called, for any purpose, by the President of
Merchants, the Merchants Board or at the request of the holders of not less than
one-third of the shares of Merchants Common Stock entitled to vote at such
meeting.
BancorpSouth. The BancorpSouth Articles provide that a special meeting
of the BancorpSouth Shareholders may be called by the Chief Executive Officer or
Secretary of BancorpSouth, or by the holders of not less than a majority of the
shares of BancorpSouth Common Stock entitled to vote at such meeting.
WHERE YOU CAN FIND MORE INFORMATION
BancorpSouth has filed with the Commission under the Securities Act a
Registration Statement on Form S-4 and a Post-Effective Amendment No. 1 thereto
that registers the distribution to Merchants Shareholders of the shares of
BancorpSouth Common Stock to be issued in connection with the Merger
(collectively, the "Registration Statement"). The Registration Statement,
including the attached exhibits and schedules, contain additional relevant
information about BancorpSouth, Merchants and the BancorpSouth Common Stock. The
rules and regulations of the Commission allow the companies to omit certain
information included in the Registration Statement from this Prospectus
Supplement/Proxy Statement.
In addition, BancorpSouth and Merchants file reports, proxy statements
and other information with the Commission under the Exchange Act. You may read
and copy this information at the following locations of the Commission:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. You can obtain information about
the operation of the Commission's Public Reference Room by calling the
Commission at 1-800-SEC-0330.
The Commission also maintains an Internet world wide web site that
contains reports, proxy statements and other information about issuers, like
BancorpSouth and Merchants, who file electronically with the Commission. The
address of that site is http://www.sec.gov.
You can also inspect reports, proxy statements and other information
about BancorpSouth at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Commission allows BancorpSouth and Merchants to "incorporate by
reference" information into this Prospectus Supplement/Proxy Statement from
documents that BancorpSouth and Merchants have previously filed with the
Commission. This means that the companies can disclose important information to
you by referring you to another document filed separately with the Commission.
These documents contain important information about the companies and their
financial condition. The information incorporated by reference is considered to
be a part of this
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Prospectus Supplement/Proxy Statement, except for any information that is
superseded by other information that is set forth directly in this document.
This Prospectus Supplement/Proxy Statement incorporates by reference
the following documents with respect to Merchants:
1. Merchants' 1997 Annual Report to Shareholders (but excluding the
letter to shareholders on pages 2 and 3, and the information on
page 44, of the report);
2. Merchants' Annual Report on Form 10-K for the year ended December
31, 1997;
3. Merchants' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
4. Merchants' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998; and
5. Merchants' Current Report on Form 8-K dated May 13, 1998.
In addition, a copy of each of the following documents with respect to
Merchants is being separately furnished to you concurrently with this Prospectus
Supplement/Proxy Statement:
1. Merchants' 1997 Annual Report to Shareholders; and
2. Merchants' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
This Prospectus Supplement/Proxy Statement incorporates by reference
the following documents with respect to BancorpSouth:
1. BancorpSouth's Annual Report on Form 10-K for the year ended
December 31, 1997;
2. BancorpSouth's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998;
3. BancorpSouth's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998;
4. BancorpSouth's Current Report on Form 8-K dated May 18, 1998;
5. BancorpSouth's Current Report on Form 8-K dated July 10, 1998;
6. BancorpSouth's Current Report on Form 8-K dated September 3,
1998;
7. The description of BancorpSouth Common Stock contained in
BancorpSouth's Registration Statement on Form 8-A dated May 14,
1997; and
8. The description of BancorpSouth Rights contained in
BancorpSouth's Registration Statement on Form 8-A dated May 14,
1997.
BancorpSouth incorporates by reference additional documents that
BancorpSouth may file with the Commission between the date of this Prospectus
Supplement/Proxy Statement and the date of the Merchants Special Meeting. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy
statements.
BancorpSouth has supplied all information contained or incorporated by
reference in this Prospectus Supplement/Proxy Statement relating to
BancorpSouth, as well as all pro forma financial information. Merchants has
supplied all information contained or incorporated by reference in this
Prospectus Supplement/Proxy Statement relating to Merchants.
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You can obtain copies of the documents incorporated by reference in
this Prospectus Supplement/Proxy Statement with respect to BancorpSouth without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Prospectus
Supplement/Proxy Statement, by requesting them in writing or by telephone from
BancorpSouth at the following:
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
(601) 680-2000
Attention: Secretary.
You can obtain copies of the documents incorporated by reference in
this Prospectus Supplement/Proxy Statement with respect to Merchants without
charge, excluding any exhibits to those documents unless the exhibit is
specifically incorporated by reference as an exhibit in this Prospectus
Supplement/Proxy Statement, by requesting them in writing or by telephone from
BancorpSouth at the following:
Merchants Capital Corporation
820 South Street
Vicksburg, Mississippi 39180
(601) 636-3752
Attention: Secretary.
If you would like to request documents from Merchants or BancorpSouth,
please do so by ________, 1998 to receive them before the Merchants Special
Meeting. You can also obtain copies of these documents from the Commission
through the Commission's Internet world wide web site or at the address
described above.
You should rely only on the information contained in or incorporated by
reference in this Prospectus Supplement/Proxy Statement in considering how to
vote your shares at the Merchants Special Meeting. Neither BancorpSouth nor
Merchants has authorized anyone to provide you with information that is
different from the information in this document. This Prospectus
Supplement/Proxy Statement is dated _______________, 1998. You should not assume
that the information contained in this document is accurate as of any date other
than that date. Neither the mailing of this Prospectus Supplement/Proxy
Statement nor the issuance of BancorpSouth Common Stock in the Merger shall
create any implication to the contrary.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This Prospectus Supplement/Proxy Statement contains certain
forward-looking statements about the financial condition, results of operations
and business of BancorpSouth and Merchants and about the combined company
following the Merger. These statements concern the cost savings, revenue
enhancements and other advantages the companies expect to obtain from the
Merger, the anticipated impact of the Merger on BancorpSouth's financial
performance and earnings estimates for the combined company. These statements
appear in several sections of this Prospectus Supplement/Proxy Statement,
including "SUMMARY," "THE MERGER -- Reasons for the Merger" and "THE MERGER --
Fairness Opinion." Also, the forward-looking statements generally include any of
the words "believes," "expects," "anticipates," "intends," "estimates," "plans"
or similar expressions.
Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and assumptions. The future results and
shareholder values of BancorpSouth and Merchants, and of the combined company,
may differ materially from those expressed in these forward-looking
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statements. Many of the factors that could influence or determine actual results
are unpredictable and not within the control of BancorpSouth or Merchants. In
addition, neither BancorpSouth nor Merchants intend to, nor are they obligated
to, update these forward-looking statements after this Prospectus
Supplement/Proxy Statement is distributed, even if new information, future
events or other circumstances have made them incorrect or misleading as of any
future date. For all of these statements, BancorpSouth and Merchants claim the
protection of the safe harbor for forward-looking statements provided in the
Private Securities Litigation Reform Act of 1995.
Factors that may cause actual results to differ materially from those
contemplated by these forward-looking statements include, among others, the
following possibilities:
1. Cost savings the companies expect from the Merger might not be
fully realized or realized within the time frame the companies
anticipate;
2. Revenues following the Merger may be lower than expected;
3. Loss of deposits, customers or revenues following the Merger may
be greater than anticipated;
4. Competitive pressure among financial services providers in the
mid-south region of the United States or in the financial
services industry generally may increase significantly;
5. Costs or difficulties related to regulatory requirements
involved in combining the two companies may be greater than
expected;
6. Interest rates may change in such a way as to reduce the
companies' margins;
7. General economic or monetary conditions, either nationally or
regionally, may be less favorable than expected, resulting in
a deterioration in credit quality or a diminished demand for
the companies' services and products;
8. Changes in laws or government rules, or the way in which courts
interpret these laws or rules, may adversely affect the
companies' businesses; and
9. Business conditions, inflation or securities markets may undergo
significant change.
LEGAL MATTERS
The validity of the shares of BancorpSouth Common Stock to be issued to
the Merchants Shareholders in the Merger will be passed upon by Waller Lansden
Dortch & Davis, A Professional Limited Liability Company, Nashville, Tennessee,
special counsel to BancorpSouth. Certain matters concerning the Merger will be
passed upon on behalf of BancorpSouth by Riley, Ford, Caldwell & Cork, P.A.,
Tupelo, Mississippi. Certain legal matters concerning the Merger will be passed
upon on behalf of Merchants by Gerrish & McCreary, P.C., Memphis, Tennessee.
EXPERTS
The Consolidated Financial Statements of BancorpSouth as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, have been incorporated by reference in this Prospectus
Supplement/Proxy Statement and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing.
The Consolidated Financial Statements of Merchants as of December 31,
1997 and 1996 and for each of the years in the three-year period ended December
31, 1997, included in this Prospectus
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Supplement/Proxy Statement and in the Registration Statement, are included in
reliance upon the report of May & Co., independent certified public accountants,
Vicksburg, Mississippi, upon the authority of such firm as experts in accounting
and auditing.
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PROSPECTUS
15,000,000 SHARES
BANCORPSOUTH
COMMON STOCK
BancorpSouth, Inc. may from time to time offer shares of its common
stock in an aggregate amount of up to 15,000,000 shares, on terms and at prices
to be determined at the time of such offerings and set forth in one or more
supplements to this Prospectus. BancorpSouth is a Mississippi corporation and a
bank holding company registered under the Bank Holding Company Act of 1956, as
amended.
Shares of BancorpSouth common stock are to be offered directly by
BancorpSouth in connection with the acquisition of, or business combination
with, certain banking or savings institutions. The specific terms under which
shares of BancorpSouth common stock are being offered in connection with the
delivery of this Prospectus will be set forth in the applicable supplement and
will include the specific number of shares of BancorpSouth common stock and the
issuance price per share. BancorpSouth common stock may not be sold through this
Prospectus without delivery of the applicable supplement.
BancorpSouth common stock is listed on the New York Stock Exchange
under the symbol "BXS."
---------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSIONER HAS APPROVED OR DISAPPROVED OF THE SHARES OF BANCORPSOUTH COMMON
STOCK TO BE ISSUED UNDER THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
SHARES OF BANCORPSOUTH COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
---------------
The date of this Prospectus is __________, 1998
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THE COMPANY
BancorpSouth, Inc. ("BancorpSouth") is a bank holding company with
financial services operations in Mississippi and Tennessee. BancorpSouth Bank, a
wholly-owned subsidiary of BancorpSouth, conducts a commercial banking and trust
business through offices located in communities throughout Mississippi and West
Tennessee. In addition, BancorpSouth Bank operates consumer finance, credit life
insurance and insurance agency subsidiaries. BancorpSouth Bank operates under
the trade names "Bank of Mississippi" in Mississippi and "Volunteer Bank" in
Tennessee.
BancorpSouth, through its subsidiaries, provides a range of financial
services to individuals and small-to-medium size businesses. Various types of
checking accounts, both interest bearing and non-interest bearing, are
available. Savings accounts and certificates of deposit with a range of
maturities and interest rates are available to meet the needs of customers.
Other services include safe deposit and night depository facilities. Limited
24-hour banking with automated teller machines is provided in most of its
principal markets. BancorpSouth Bank is an issuing bank for MasterCard, and
overdraft protection is available to approved MasterCard holders maintaining
checking accounts with BancorpSouth Bank.
BancorpSouth offers a variety of services through the trust department
of BancorpSouth Bank, including personal trust and estate services, certain
employee benefit accounts and plans, including individual retirement accounts,
and limited corporate trust functions.
BancorpSouth's lending activities include both commercial and consumer
loans. Loan originations are derived from a number of sources including real
estate broker referrals, mortgage loan companies, direct solicitation by
BancorpSouth's loan officers, present savers and borrowers, builders, attorneys,
walk-in customers and, in some instances, other lenders. BancorpSouth has
established disciplined and systematic procedures for approving and monitoring
loans that vary depending on the size and nature of the loan.
BancorpSouth's principal office is located at One Mississippi Plaza,
Tupelo, Mississippi, 38801 and its telephone number is (601) 680-2000.
AVAILABLE INFORMATION
BancorpSouth has filed a Registration Statement on Form S-4, including
amendments thereto, if any, with respect to BancorpSouth common stock (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC"). This Prospectus and any accompanying supplement do not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement or as previously filed with
the SEC and incorporated herein by reference. For further information with
respect to BancorpSouth and BancorpSouth common stock, reference is made to such
Registration Statement, exhibits and schedules.
BancorpSouth is subject to the information requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the SEC.
The Registration Statement, as well as such reports, proxy statements and other
information, may be inspected and copied at prescribed rates at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. You can obtain
information about the operation of the SEC's Public
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Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC at
http://www.sec.gov. BancorpSouth common stock is listed on The New York Stock
Exchange, Inc., and such reports, proxy statements and other information may be
inspected at the offices of the New York Stock Exchange at 20 Broad Street, New
York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed by BancorpSouth
with the SEC are incorporated herein by reference:
1. BancorpSouth's Annual Report on Form 10-K for the year ended
December 31, 1997;
2. BancorpSouth's Quarterly Report on Form 10-Q for the three months
ended March 31, 1998;
3. BancorpSouth's Quarterly Report on Form 10-Q for the three months
ended June 30, 1998;
4. BancorpSouth's Current Report on form 8-K dated May 18, 1998;
5. BancorpSouth's Current Report on Form 8-K dated July 10, 1998;
6. BancorpSouth's Current Report on Form 8-K dated September 3, 1998;
7. The description of BancorpSouth common stock contained in
BancorpSouth's Registration Statement on Form 8-A, dated May
14, 1997; and
8. The description of BancorpSouth common stock purchase rights
contained in BancorpSouth's Registration Statement on Form 8-A,
dated May 14, 1997.
All documents filed by BancorpSouth pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus shall
be deemed to be incorporated by reference into this Prospectus. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein, modifies or supersede such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. A copy of these documents is available
upon written or oral request, at no charge, from Cathy S. Freeman, Vice
President and Corporate Secretary, BancorpSouth, Inc., One Mississippi Plaza,
Tupelo, Mississippi 38801, (601) 680-2000.
LEGAL MATTERS
The validity of the shares of BancorpSouth common stock to be offered
hereunder will be passed upon by Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, Nashville, Tennessee, special counsel to
BancorpSouth. Certain matters concerning this offering will be passed upon on
behalf of BancorpSouth by Riley, Ford, Caldwell & Cork, P.A., Tupelo,
Mississippi.
EXPERTS
The Consolidated Financial Statements of BancorpSouth, as of December
31, 1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, have been incorporated by reference in this Prospectus and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of such firm as experts in accounting and auditing.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
BANCORPSOUTH, INC.
AND
MERCHANTS CAPITAL CORPORATION
DATED AS OF MAY 2, 1998
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 2, 1998 (this
"Agreement"), between BancorpSouth, Inc., a Mississippi corporation (the
"Parent") and Merchants Capital Corporation, a Mississippi corporation (the
"Company" and collectively with Parent, the "Holding Companies").
WHEREAS, Parent is the parent corporation of BancorpSouth
Bank, a Mississippi state bank ("BancorpSouth Bank"), and the Company is the
parent corporation of Merchants Bank, a Mississippi state bank ("Merchants Bank"
and together with BancorpSouth Bank, the "Banks");
WHEREAS, the Boards of Directors of Parent and the Company
have determined that it is in the best interests of their respective companies
and their shareholders to consummate the business combination transaction
provided for herein in which (i) the Company will merge with and into Parent
(the "Holding Company Merger") and (ii) Merchants Bank will merge with and into
BancorpSouth Bank (the "Bank Merger"), each subject to the terms and conditions
set forth herein (collectively, the "Merger"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger.
(a) Subject to the terms and conditions of this
Agreement, in accordance with the Mississippi Business Corporation Act
(the "MBCA"), at the Effective Time (as defined in Section 1.2 hereof),
the Company shall merge with and into Parent. Parent shall be the
surviving corporation (hereinafter sometimes called the "Surviving
Corporation") in the Holding Company Merger, and shall continue its
corporate existence under the laws of the State of Mississippi. The
name of the Surviving Corporation shall continue to be BancorpSouth,
Inc. Upon consummation of the Holding Company Merger, the separate
corporate existence of the Company shall terminate.
(b) Subject to the terms and conditions of this
Agreement, in accordance with the Mississippi Banking Act (the "MBA"),
at the Effective Time (as defined in Section 1.2 hereof), Merchants
Bank shall merge with and into BancorpSouth Bank. BancorpSouth Bank
shall be the surviving banking corporation (hereinafter sometimes
called the "Surviving Bank") in the Bank Merger, and shall continue its
corporate existence under the laws of the State of Mississippi. The
name of the Surviving Bank shall continue to be BancorpSouth Bank. Upon
consummation of the Bank Merger, the separate corporate existence of
Merchants Bank shall terminate.
1.2. Effective Time. The Merger shall become effective as set
forth in the articles of merger (the "Articles of Merger") which shall be filed
with the Secretary of State of the State of Mississippi (the "Mississippi
Secretary") with respect to the Holding Company Merger, and the Mississippi
Department of Banking and Consumer Finance (the "Mississippi Department") with
respect to the Bank Merger, each on the Closing Date (as defined in Section 10.1
hereof). The term "Effective Time" shall be the date and time when the Merger
becomes effective, as set forth in the Articles of Merger.
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1.3. Effects of the Merger. At and after the Effective Time,
the Merger shall have the effects set forth in Sections 79-4-11.01 and 81-5-85
of the Mississippi Code.
1.4. Conversion of Company Common Stock.
(a) At the Effective Time, subject to Section 2.2(e)
and Section 9.1(g) hereof, each share of the common stock, par value
$5.00, of the Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time (other than
Dissenting Shares (as defined herein) and other than shares of Company
Common Stock held directly or indirectly by Parent or the Company or
any of their respective Subsidiaries (as defined below) (except for
Trust Account Shares and DPC shares, as such terms are defined in
Section 1.4(b) hereof)) shall, by virtue of this Agreement and without
any action on the part of the holder thereof, be converted into and
exchangeable for 3.768 shares (the "Exchange Ratio") of the common
stock, par value $2.50 per share, of Parent ("Parent Common Stock")
(together with the number of Parent Rights (as defined in Section 5.2
hereof) associated therewith). All of the shares of Company Common
Stock converted into Parent Common Stock pursuant to this Article I
shall no longer be outstanding and shall automatically be cancelled and
shall cease to exist, and each certificate (each a "Certificate")
previously representing any such shares of Company Common Stock shall
thereafter only represent the right to receive (i) the number of whole
shares of Parent Common Stock and (ii) the cash in lieu of fractional
shares into which the shares of Company Common Stock represented by
such Certificate have been converted pursuant to this Section 1.4(a)
and Section 2.2(e) hereof. Certificates previously representing shares
of Company Common Stock shall be exchanged for certificates
representing whole shares of Parent Common Stock and cash in lieu of
fractional shares issued in consideration therefor upon the surrender
of such Certificates in accordance with Section 2.2 hereof, without any
interest thereon. If, between the date of this Agreement and the
Effective Time, the shares of Parent Common Stock shall be changed into
a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or a stock dividend thereon shall be declared
with a record date within said period other than any stock dividend due
to be paid to the Parent shareholders on May 15, 1998, the Exchange
Ratio shall be adjusted accordingly.
(b) At the Effective Time, all shares of Company
Common Stock that are owned directly or indirectly by Parent or the
Company or any of their respective Subsidiaries (other than shares of
Company Common Stock (x) held directly or indirectly in trust accounts,
managed accounts and the like or otherwise held in a fiduciary capacity
for the benefit of third parties (any such shares, and shares of Parent
Common Stock which are similarly held, whether held directly or
indirectly by Parent or the Company, as the case may be, being referred
to herein as "Trust Account Shares") and (y) held by Parent or the
Company or any of their respective Subsidiaries in respect of a debt
previously contracted (any such shares of Company Common Stock, and
shares of Parent Common Stock which are similarly held, whether held
directly or indirectly by Parent or the Company, being referred to
herein as "DPC Shares")) shall be cancelled and shall cease to exist
and no stock of Parent or other consideration shall be delivered in
exchange therefor. All shares of Parent Common Stock that are owned by
the Company or any of its Subsidiaries (other than Trust Account Shares
and DPC Shares) shall become treasury stock of Parent.
(c) Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock which are outstanding
immediately prior to the Effective Time and with respect to which
dissenters' rights shall have been properly demanded in accordance with
Article 13 of the MBCA ("Dissenting Shares") shall not be converted
into the
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right to receive, or be exchangeable for, Parent Common Stock or cash
in lieu of fractional shares but, instead, the holders thereof shall be
entitled to payment of the appraised value of such Dissenting Shares in
accordance with the provisions of Article 13 of the MBCA; provided,
however, that (i) if any holder of Dissenting Shares shall subsequently
deliver a written withdrawal of his demand for appraisal of such
shares, or (ii) if any holder fails to establish his entitlement to
dissenters' rights as provided in Article 13 of the MBCA, such holder
or holders (as the case may be) shall forfeit the right to appraisal of
such shares of Company Common Stock and each of such shares shall
thereupon be deemed to have been converted into the right to receive,
and to have become exchangeable for, as of the Effective Time, Parent
Common Stock and/or cash in lieu of fractional shares, without any
interest thereon, as provided in Section 1.4(a) and Article II hereof.
(d) The Parent may terminate this Agreement if cash
payments in respect of fractional shares or dissenter's rights exceed
the amount permissible for the utilization of pooling of interests
accounting treatment.
(e) At the Effective Time, all shares of Merchants
Bank common stock, par value $15.00 per share ("Merchants Bank Common
Stock"), shall be cancelled and shall cease to exist and no stock of
Parent, BancorpSouth Bank, or other consideration shall be delivered in
exchange therefor.
1.5. Stock Options.
(a) At the Effective Time, each option granted by the
Company to purchase shares of Company Common Stock (each a "Company
Option") which is outstanding and unexercised immediately prior thereto
shall cease to represent a right to acquire shares of Company Common
Stock and shall be replaced by an option issued under the appropriate
stock option plan of the Parent:
(1) the number of shares of Parent Common
Stock to be subject to the new option shall be equal to the
product of the number of shares of Company Common Stock
subject to the original option and the Exchange Ratio,
provided that any fractional shares of Parent Common Stock
resulting from such multiplication shall be rounded down to
the nearest whole share; and
(2) the exercise price per share of Parent
Common Stock under the new option shall be equal to the
exercise price per share of Company Common Stock under the
original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options
which are incentive stock options" (as defined in Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be and is intended to be effected in a manner which is
consistent with Section 424(a) of the Code and, to the extent
it is not so consistent, such Section 424(a) shall override
anything to the contrary contained herein. The duration and
other terms of the new option shall be the same as the
original option except that all references to the Company
shall be deemed to be references to Parent.
(b) Prior to the Effective Time, Parent shall reserve
for issuance the number of shares of Parent Common Stock necessary to
satisfy Parent's obligations under this Section 1.5.
1.6. Parent Common Stock. Except for shares of Parent Common
Stock owned by the Company or any of its Subsidiaries (other than Trust Account
Shares and DPC Shares), which shall be converted into treasury stock of Parent
as contemplated by Section 1.4 hereof, the shares of
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Parent Common Stock issued and outstanding immediately prior to the Effective
Time shall be unaffected by the Merger and such shares shall remain issued and
outstanding.
1.7. Articles. At the Effective Time, the Amended and Restated
Articles of Incorporation of Parent, as in effect at the Effective Time, shall
be the articles of incorporation of the Surviving Corporation. At the Effective
Time, the Amended and Restated Articles of Association of BancorpSouth Bank, as
in effect at the Effective Time, shall be the articles of association of the
Surviving Bank.
1.8. By-Laws. At the Effective Time, the By-Laws of Parent, as
in effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation until thereafter amended in accordance with applicable
law.
1.9. Directors and Officers. The directors and officers of
Parent immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Restated Articles of Incorporation and By-Laws of the Surviving Corporation
until their respective successors are duly elected or appointed and qualified.
The directors and officers of BancorpSouth Bank immediately prior to the
Effective Time shall be the directors and officers of the Surviving Bank, each
to hold office in accordance with the Restated Articles of Association and
By-Laws of the Surviving Bank until their respective successors are duly elected
or appointed and qualified.
1.10. Tax Consequences; Accounting Treatment. It is intended
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code, and (ii) be
accounted for as a "pooling of interests" under GAAP (as defined herein).
ARTICLE II
EXCHANGE OF SHARES
2.1. Parent to Make Shares Available. At or prior to the
Effective Time, Parent shall deposit, or shall cause to be deposited, with a
bank or trust company (the "Exchange Agent") selected by Parent and reasonably
satisfactory to the Company, for the benefit of the holders of Certificates, for
exchange in accordance with this Article II, certificates representing the
shares of Parent Common Stock and the cash in lieu of fractional shares (such
cash and certificates for shares of Parent Common Stock, together with any
dividends or distributions with respect thereto, being hereinafter referred to
as the "Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant
to Section 2.2(a) in exchange for outstanding shares of Company Common Stock.
2.2. Exchange of Shares.
(a) As soon as practicable after the Effective Time,
and in no event more than three business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or
Certificates a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing the shares
of Parent Common Stock and the cash in lieu of fractional shares into
which the shares of Company Common Stock represented by such
Certificate or Certificates shall have been converted pursuant to this
Agreement. The Company shall have the right to review both the letter
of transmittal and the instructions prior to the Effective Time and
provide reasonable comments thereon. Upon surrender of a Certificate
for exchange and cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of
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Parent Common Stock to which such holder of Company Common Stock shall
have become entitled pursuant to the provisions of Article I hereof and
(y) a check representing the amount of cash in lieu of fractional
shares, if any, which such holder has the right to receive in respect
of the Certificate surrendered pursuant to the provisions of this
Article II, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of
fractional shares and unpaid dividends and distributions, if any,
payable to holders of Certificates.
(b) No dividends or other distributions declared
after the Effective Time with respect to Parent Common Stock and
payable to the holders of record thereof shall be paid to the holder of
any unsurrendered Certificate until the holder thereof shall surrender
such Certificate in accordance with this Article II. After the
surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends
or other distributions, without any interest thereon, which theretofore
had become payable with respect to shares of Parent Common Stock
represented by such Certificate.
(c) If any certificate representing shares of Parent
Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be
a condition of the issuance thereof that the Certificate so surrendered
shall be properly endorsed (or accompanied by an appropriate instrument
of transfer) and otherwise in proper form for transfer, and that the
person requesting such exchange shall pay to the Exchange Agent in
advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Parent Common Stock in any name
other than that of the registered holder of the Certificate
surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or
is not payable.
(d) After the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of
Company Common Stock which were issued and outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange
Agent, they shall be cancelled and exchanged for certificates
representing shares of Parent Common Stock as provided in this Article
II.
(e) Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution with respect to
Parent Common Stock shall be payable on or with respect to any
fractional share, and such fractional share interests shall not entitle
the owner thereof to vote or to any other rights of a shareholder of
Parent. In lieu of the issuance of any such fractional share, Parent
shall pay to each former stockholder of the Company who otherwise would
be entitled to receive a fractional share of Parent Common Stock an
amount in cash determined by multiplying (i) $22.5625 (the
"BancorpSouth Price") by (ii) the fraction of a share of Parent Common
Stock which such holder would otherwise be entitled to receive pursuant
to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains
unclaimed by the shareholders of the Company for twelve months after
the Effective Time shall be paid to Parent. Any shareholders of the
Company who have not theretofore complied with this Article II shall
thereafter look only to Parent for payment of their shares of Parent
Common Stock, cash in lieu of fractional shares and unpaid dividends
and distributions on Parent Common Stock deliverable in respect of each
share of Company Common Stock such stockholder holds as determined
pursuant to this Agreement, in each case, without any interest thereon.
Notwithstanding the foregoing, none of Parent, the Company, the
Exchange Agent or any other person shall be liable to any former holder
of shares of Company Common
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Stock for any amount properly delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed
and, if required by Parent, the posting by such person of a bond in
such amount as Parent may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this
Agreement.
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
3.1 Disclosure Schedules. The parties acknowledge that as of
the date of this Agreement, the Company has delivered those portions of the
Company Disclosure Schedule specifically referred to herein, and the Parent has
delivered those portions of the Parent Disclosure Schedule (and, with the
Company Disclosure Schedule, the "Disclosure Schedules") specifically referred
to herein. Notwithstanding anything in this Agreement to the contrary, the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or material fact, event or circumstance or
that such item has had or could be reasonably expected to have a Material
Adverse Effect (as defined herein) with respect to either the Company or Parent,
respectively.
3.2. Standards.
(a) No representation or warranty of the Company
contained in Article IV or of Parent contained in Article V shall be
deemed untrue or incorrect for any purpose under this Agreement as a
consequence of the existence or absence of any fact, circumstance or
event, unless such fact, circumstance or event, individually or when
taken together with all other facts, circumstances or events
inconsistent with such representation or warranty contained in Article
IV, in the case of the Company, or Article V, in the case of Parent,
has had or could be reasonably expected to have a Material Adverse
Effect with respect to the Company or Parent, respectively.
(b) As used in this Agreement, the term "Material
Adverse Effect" means, with respect to Parent or the Company, as the
case may be, a material adverse effect on (i) the business, results of
operations or financial condition of such party and its Subsidiaries
taken as a whole, other than any such effect attributable to or
resulting from (w) any change in banking or similar laws, rules or
regulations of general applicability or interpretations thereof by
courts or governmental authorities, (x) any change in GAAP or
regulatory accounting principles applicable to banks or their holding
companies generally, (y) any action or omission of the Company or
Parent or any Subsidiary of either of them taken with the express prior
written consent of the other party hereto, or (z) any expenses incurred
by such party which such expenses are contemplated by or reasonably
incurred in connection with this Agreement or the transactions
contemplated hereby or (ii) the ability of such party and its
Subsidiaries to consummate the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Article III, the Company hereby represents and
warrants to Parent as follows:
4.1. Corporate Organization.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Mississippi. The Company has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business
as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary. The Company is duly registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended (the "BHC Act").
The Articles of Incorporation and By-laws of the Company, copies of
which have previously been made available to Parent, are true and
correct copies of such documents as in effect as of the date of this
Agreement. As used in this Agreement, the word "Subsidiary" when used
with respect to any party means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes.
(b) Merchants Bank is a Mississippi state bank duly
organized, validly existing and in good standing under the laws of the
State of Mississippi. The deposit accounts of Merchants Bank are
insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Bank Insurance Fund and the Savings Association Insurance
Fund to the fullest extent permitted by law, and all premiums and
assessments required to be paid in connection therewith have been paid
when due. Each of the Company's other Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation or organization. Each of the
Company's Subsidiaries has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as
it is now being conducted and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or the location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary. The articles of incorporation, by-laws and similar governing
documents of each Subsidiary of the Company, copies of which have
previously been made available to Parent, are true and correct copies
of such documents as in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its
Subsidiaries contain true and correct records of all meetings and other
corporate actions held or taken since December 31, 1996 of their
respective shareholders and Boards of Directors (including committees
of their respective Boards of Directors).
4.2. Capitalization.
(a) The authorized capital stock of the Company
consists of 1,000,000 shares of Company Common Stock. As of December
31, 1997, there were 742,651 shares of Company Common Stock outstanding
and no shares of Company Common Stock held by the Company as treasury
stock. There are (i) no shares of Company Common Stock reserved for
issuance upon exercise of outstanding stock options or otherwise except
for (x) 26,250 shares of Company Common Stock reserved for issuance
pursuant to the Company Option Plans under which options to acquire
2,050 shares of Company Common Stock are outstanding, and (y) 148,450
shares of Company Common Stock reserved for issuance upon exercise of
the
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option (the "Option") to be issued to Parent pursuant to the Stock
Option Agreement, to be entered into on the date hereof, between Parent
and Company (the "Stock Option Agreement"). All of the issued and
outstanding shares of Company Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the
ownership thereof. Except for options outstanding under the Company
Option Plan, the Company does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of Company Common Stock or any other equity security of the
Company or any securities representing the right to purchase or
otherwise receive any shares of Company Common Stock or any other
equity security of the Company. The names of the optionees, the date of
each option to purchase Company Common Stock granted, the number of
shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised under
the Company Option Plans, if any, shall be set forth in Section 4.2(a)
of the Company Disclosure Schedule.
(b) Section 4.2(b) of the Company Disclosure Schedule
sets forth a true and correct list of all of the Subsidiaries of the
Company. Except as set forth in Section 4.2(a) of the Company
Disclosure Schedule, the Company owns, directly or indirectly, all of
the issued and outstanding shares of the capital stock of each of such
Subsidiaries, free and clear of all liens, charges, encumbrances and
security interests whatsoever, and all of such shares are duly
authorized and validly issued and are fully paid, nonassessable and
free of preemptive rights, with no personal liability attaching to the
ownership thereof. No Subsidiary of the Company has or is bound by any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such Subsidiary
or any securities representing the right to purchase or otherwise
receive any shares of capital stock or any other equity security of
such Subsidiary. Assuming compliance by Parent with Section 1.5 hereof,
and except as provided in Section 4.2(b) of the Company Disclosure
Schedule, at the Effective Time, there will not be any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character by which the Company or any of its Subsidiaries will be
bound calling for the purchase or issuance of any shares of the capital
stock of the Company or any of its Subsidiaries. Except for its
Subsidiaries, the Company does not own (other than in a bona fide
fiduciary capacity or in satisfaction of a debt previously contracted)
beneficially, directly or indirectly, any shares of any equity
securities or similar interests of any person, or any interest in a
partnership or joint venture of any kind.
4.3. Authority; No Violation.
(a) The Company has full corporate power and
authority to execute and deliver this Agreement and the Stock Option
Agreement and, upon the receipt of shareholder approval of the
Agreement, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Stock
Option Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly and validly approved by the Board of
Directors of the Company. The Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby
be submitted to the Company's shareholders for approval at a meeting of
such shareholders and, except for the adoption of this Agreement by the
requisite vote of the Company's shareholders, no other corporate
proceedings on the part of the Company are necessary to approve this
Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. This Agreement has been,
and the Stock Option Agreement will be, duly and validly executed and
delivered by the Company and (assuming due authorization, execution and
delivery by Parent) this Agreement constitutes a
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valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of
law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this
Agreement or the Stock Option Agreement by the Company, nor the
consummation by the Company of the transactions contemplated hereby or
thereby, nor compliance by the Company with any of the terms or
provisions hereof or thereof, will (i) violate any provision of the
Articles of Incorporation or By-Laws of the Company or the certificate
of incorporation, by-laws or similar governing documents of any of its
Subsidiaries, or (ii) assuming that the consents and approvals referred
to in Section 4.4 hereof are duly obtained, (x) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any of its Subsidiaries, or any
of their respective properties or assets, or (y) violate, conflict
with, result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of
any lien, pledge, security interest, charge or other encumbrance upon
any of the respective properties or assets of the Company or any of its
Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected.
4.4. Consents and Approvals. Except for (a) the filing of
applications and notices, as applicable, with the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the BHC Act, and with
the FDIC under the Federal Deposit Insurance Act, as amended (the "FDIA"), and
approval of such applications and notices, (b) the filing of such applications,
filings, authorizations, orders and approvals as may be required under
applicable state law, (c) the filing with the SEC of a proxy statement in
definitive form relating to the meetings of the Company's shareholders to be
held in connection with this Agreement and the transactions contemplated hereby
(the "Proxy Statement") and the filing and declaration of effectiveness of a
post-effective amendment to the shelf registration statement on Form S-4 (such
shelf registration statement and any post-effective amendment thereto relating
to this transaction, the "S-4") in which the Proxy Statement will be included as
a prospectus, (d) the approval of this Agreement by the requisite vote of the
shareholders of the Company, (e) the filing of the Articles of Merger with the
Mississippi Secretary and the Mississippi Department and (f) approval for
listing of the Parent Common Stock to be issued in the Merger on the New York
Stock Exchange ("NYSE"), no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary in connection with (1) the execution and delivery by the
Company of this Agreement and the Stock Option Agreement and (2) the
consummation by the Company of the Merger and the other transactions
contemplated hereby and thereby.
4.5. Reports. The Company and each of its Subsidiaries have
timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since December 31, 1995 with (i) the Federal Reserve Board, (ii) the FDIC,
(iii) any Federal Reserve Bank, (iv) any state banking commissions or any other
state regulatory authority (each a "State Regulator") and (v) any other
self-regulatory organization ("SRO") (collectively, the "Regulatory Agencies"),
and have paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the regular
course of the business of the Company and its Subsidiaries, no Regulatory Agency
has initiated any proceeding or, to the knowledge of the Company, investigation
into the business or operations of the Company or any of its Subsidiaries since
December 31, 1995. Except as set forth in
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Section 4.5 of the Company Disclosure Schedule, there is no unresolved
violation, criticism, or exception by any Regulatory Agency with respect to any
report or statement relating to any examinations of the Company or any of its
Subsidiaries.
4.6. Financial Statements. The Company has previously made
available to Parent copies of (a) the consolidated statements of condition of
the Company and its Subsidiaries as of December 31 for the fiscal years 1996 and
1997, and the related consolidated statements of earnings, changes in
shareholders' equity and cash flows for the fiscal years 1996 through 1997,
inclusive, as reported in the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1997 filed with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in each case accompanied
by the audit report of May & Company, independent public accountants with
respect to the Company. The December 31, 1997 consolidated statement of
condition of the Company (including the related notes, where applicable) fairly
presents the consolidated financial position of the Company and its Subsidiaries
as of the date thereof, and the other financial statements referred to in this
Section 4.6 (including the related notes, where applicable) fairly present, and
the financial statements to be filed with the SEC after the date hereof will
fairly present (subject, in the case of the unaudited statements, to recurring
audit adjustments normal in nature and amount), the results of the consolidated
operations and consolidated financial position of the Company and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) complies, and the financial statements to be filed with the SEC
after the date hereof will comply, with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto; and
each of such statements (including the related notes, where applicable) has
been, and the financial statements to be filed with the SEC after the date
hereof will be, prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB. The books and records of the Company and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
any other applicable legal and accounting requirements.
4.7. Broker's Fees. Neither the Company nor any Subsidiary of
the Company nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement or the Stock Option Agreement.
4.8. Absence of Certain Changes or Events.
(a) Since December 31, 1997, except as set forth in
Section 4.8 of the Company Disclosure Schedule, (i) there has been no
change or development or combination of changes or developments which,
individually or in the aggregate, has had a Material Adverse Effect on
the Company and (ii) the Company and its Subsidiaries have carried on
their respective businesses in the ordinary course consistent with
their past practices.
(b) Neither the Company nor any of its Subsidiaries
has, except as set forth in Section 4.8 of the Company Disclosure
Schedule, (i) increased the wages, salaries, compensation, pension, or
other fringe benefits or perquisites payable to any executive officer,
employee, or director from the amount thereof in effect as of December
31, 1997 (which amounts have been previously disclosed to Parent),
granted any severance or termination pay, entered into any contract to
make or grant any severance or termination pay, or paid any bonus
(except for salary increases and bonus payments made in the ordinary
course of business consistent with past practices, (ii) suffered any
strike, work stoppage, slow-down, or other labor disturbance, (iii)
been a party to a collective bargaining agreement, contract or other
agreement or understanding with a labor union or organization, or (iv)
had any union organizing activities.
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4.9. Legal Proceedings.
(a) Neither the Company nor any of its Subsidiaries
is a party to any, and there are no pending or, to the Company's
knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory
investigations of any nature against the Company or any of its
Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree,
or regulatory restriction imposed upon the Company, any of its
Subsidiaries or the assets of the Company or any of its Subsidiaries.
4.10. Taxes.
(a) Each of the Company and its Subsidiaries has (i)
duly and timely filed (including applicable extensions granted without
penalty) all Tax Returns (as hereinafter defined) required to be filed
at or prior to the Effective Time, and such Tax Returns are true and
correct, and (ii) paid in full or made adequate provision in the
financial statements of the Company (in accordance with GAAP) for all
Taxes (as hereinafter defined) shown to be due on such Tax Returns.
Except as set forth in Section 4.10 of the Company Disclosure Schedule,
as of the date hereof neither the Company nor any of its Subsidiaries
has requested any extension of time within which to file any Tax
Returns in respect of any fiscal year which have not since been filed
and no request for waivers of the time to assess any Taxes are pending
or outstanding, and as of the date hereof, with respect to each taxable
period of the Company and its Subsidiaries, the federal and state
income Tax Returns of the Company and its Subsidiaries have been
audited by the Internal Revenue Service or appropriate state tax
authorities or the time for assessing and collecting income Tax with
respect to such taxable period has closed and such taxable period is
not subject to review.
(b) For the purposes of this Agreement, "Taxes" shall
mean all taxes, charges, fees, levies, penalties or other assessments
imposed by any United States federal, state, local or foreign taxing
authority, including, but not limited to income, excise, property,
sales, transfer, franchise, payroll, withholding, social security or
other taxes, including any interest, penalties or additions
attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document
(including any related or supporting information) with respect to
Taxes.
4.11. Employees.
(a) Section 4.11(a) of the Company Disclosure
Schedule sets forth a true and correct list of each deferred
compensation plan, incentive compensation plan, equity compensation
plan, "welfare" plan, fund or program (within the meaning of section
3(l) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")); "pension" plan, fund or program (within the meaning of
section 3(2) of ERISA); each employment, termination or severance
agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to (the "Plans") by the
Company, any of its Subsidiaries or by any trade or business, whether
or not incorporated (an "ERISA Affiliate"), all of which together with
the Company would be deemed a "single employer" within the meaning of
Section 4001 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or Section 414(b), (c), (m) or (o) of the Code, for
the benefit of any employee or former employee of the Company, any
Subsidiary or any ERISA Affiliate.
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(b) The Company has heretofore made available to
Parent with respect to each of the Plans true and correct copies of
each of the following documents if applicable: (i) the Plan document;
(ii) the actuarial report for such Plan for each of the last two years,
(iii) the most recent determination letter from the Internal Revenue
Service for such Plan and (iv) the most recent summary plan description
and related summaries of material modifications.
(c) Except as set forth in Section 4.11(c) of the
Company Disclosure Schedule, each of the Plans are in compliance with
the applicable provisions of the Code and ERISA; each of the Plans
intended to be "qualified" within the meaning of section 401(a) of the
Code has received a favorable determination letter from the IRS and to
the knowledge of the Company, nothing has occurred which could
reasonably be expected to result in the revocation of such letter; no
Plan has an accumulated or waived funding deficiency within the meaning
of section 412 of the Code; neither the Company nor any ERISA Affiliate
has incurred, directly or indirectly, any liability to or on account of
a Plan pursuant to Title IV of ERISA (other than PBGC premiums); to the
knowledge of the Company no proceedings have been instituted to
terminate any Plan that is subject to Title IV of ERISA; no "reportable
event," as such term is defined in section 4043(c) of ERISA, has
occurred with respect to any Plan (other than a reportable event with
respect to which the thirty day notice period has been waived); no
condition exists that presents a material risk to the Company of
incurring a liability to or on account of a Plan pursuant to Title IV
of ERISA; no Plan is a multiemployer plan (within the meaning of
section 4001(a)(3) of ERISA) and no Plan is a multiple employer plan as
defined in Section 413 of the Code; and there are no pending, or to the
knowledge of the Company, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the
Plans or any trusts related thereto.
(d) Except as set forth in Section 4.11(d) of the
Company Disclosure Schedule or as otherwise contemplated by this
Agreement or any other agreements entered into by any party hereto in
connection with the execution hereof, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (either alone or in conjunction with any other
event) (i) result in any payment (including, without limitation,
severance, unemployment compensation, "excess parachute payment" within
the meaning of Section 280G of the Code, forgiveness of indebtedness or
otherwise) becoming due to any officer, director or employee of the
Company or any of its Subsidiaries under any Plan or otherwise, (ii)
increase any benefits payable under any Plan or (iii) result in any
acceleration of the time of payment or vesting of any such benefits.
4.12. SEC Reports. The Company has previously made available
to Parent a true and correct copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since December
31, 1996 by the Company with the SEC pursuant to the Securities Act or the
Exchange Act (the "Company Reports"), if any, and (b) communication sent by the
Company to its shareholders since December 31, 1996, and no such registration
statement, prospectus, report, schedule, proxy statement or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information contained in the Company Reports as of a
later date shall be deemed to modify information contained in the Company
Reports as of an earlier date. The Company has timely filed all Company Reports
and other documents required to be filed by it under the Securities Act and the
Exchange Act, and, as of their respective dates, all Company Reports complied
with the published rules and regulations of the SEC with respect thereto.
4.13. Company Information. The information relating to the
Company and its Subsidiaries which is provided to Parent by the Company or its
representatives for inclusion in the Proxy Statement and the S-4, or in any
other document filed with any other regulatory agency in
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connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to Parent or any of its
Subsidiaries) will comply with the provisions of the Exchange Act and the rules
and regulations thereunder.
4.14. Compliance with Applicable Law. Except as disclosed in
connection with Section 4.5, the Company and each of its Subsidiaries hold, and
have at all times held, all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and have complied with and are not in default in any respect
under any, applicable law, statute, order, rule, regulation, policy and/or
guideline of any Governmental Entity relating to the Company or any of its
Subsidiaries, and neither the Company nor any of its Subsidiaries has received
notice of any violations of any of the above.
4.15. Certain Contracts.
(a) Except as set forth in Section 4.15 of the
Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to or bound by any contract (whether written or
oral) (i) with respect to the employment of any directors or
consultants, (ii) which, upon the consummation of the transactions
contemplated by this Agreement, will (either alone or upon the
occurrence of any additional acts or events) result in any payment or
benefits (whether of severance pay or otherwise) becoming due, or the
acceleration or vesting of any rights to any payment or benefits, from
Parent, the Company, the Surviving Corporation or any of their
respective Subsidiaries to any director or consultant thereof, (iii)
which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this
Agreement that has not been filed or incorporated by reference in the
Company Reports, (iv) which is a consulting agreement (including data
processing, software programming and licensing contracts) not
terminable on 90 days or less notice involving the payment of more than
$50,000 per annum, or (v) which materially restricts the conduct of any
line of business by the Company or any of its Subsidiaries. Each
contract, arrangement, commitment or understanding of the type
described in this Section 4.15(a) is referred to herein as a "Company
Contract". The Company has previously delivered or made available to
Parent true and correct copies of each Company Contract.
(b) (i) Each Company Contract described in clause
(iii) of Section 4.15(a) is valid and binding and in full force and
effect, (ii) the Company and each of its Subsidiaries has performed all
obligations required to be performed by it to date under each Company
Contract described in clause (iii) of Section 4.15(a), (iii) no event
or condition exists which constitutes or, after notice or lapse of time
or both, would constitute, a default on the part of the Company or any
of its Subsidiaries under any Company Contract described in clause
(iii) of Section 4.15(a), and (iv) no other party to any Company
Contract described in clause (iii) of Section 4.15(a) is, to the
knowledge of the Company, in default in any respect thereunder.
4.16. Agreements with Regulatory Agencies. Neither the Company
nor any of its Subsidiaries is subject to any cease-and-desist or other order
issued by, or is a party to any written agreement, consent agreement or
memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each, a "Regulatory Agreement"), any Regulatory
Agency or other Governmental Entity that restricts the conduct of its business
or that in any manner relates to its capital adequacy, its credit policies, its
management or its business, nor has the Company or any of its Subsidiaries been
advised by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
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4.17. Business Combination Provision; Takeover Laws. The
Company has taken all action required to be taken by it in order to exempt this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby from, and this Agreement and the Stock Option Agreement and
the transactions contemplated hereby and thereby are exempt from, the
requirements of any "moratorium", "control share", "fair price" or other
anti-takeover laws and regulations (collectively, "Takeover Laws") of the State
of Mississippi, including the Mississippi Shareholder Protection Act and the
Mississippi Control Share Act.
4.18. Administration of Fiduciary Accounts. The Company and
each of its Subsidiaries has properly administered all accounts for which it
acts as a fiduciary, including but not limited to accounts for which it serves
as a trustee, agent, custodian, personal representative, guardian, conservator
or investment advisor, in accordance with the terms of the governing documents
and applicable state and federal law and regulation and common law. Neither the
Company nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account, and the accountings for each such fiduciary account are true
and correct and accurately reflect the assets of such fiduciary account.
4.19. Environmental Matters.
(a) Except as set forth in Section 4.19 of the
Company Disclosure Schedule, each of the Company and its Subsidiaries
and, to the knowledge of the Company, each of the Participation
Facilities and the Loan Properties (each as hereinafter defined), are
in compliance with all applicable federal, state and local laws,
including common law, regulations and ordinances, and with all
applicable decrees, orders and contractual obligations relating to
pollution or the discharge of, or exposure to, Hazardous Materials (as
hereinafter defined) in the environment or workplace ("Environmental
Laws");
(b) There is no suit, claim, action or proceeding,
pending or, to the knowledge of the Company, threatened, before any
Governmental Entity or other forum in which the Company, any of its
Subsidiaries, any Participation Facility or any Loan Property, has been
or, with respect to threatened proceedings, may be, named as a
defendant (x) for alleged noncompliance (including by any predecessor)
with any Environmental Laws, or (y) relating to the release, threatened
release or exposure to any Hazardous Material whether or not occurring
at or on a site owned, leased or operated by the Company or any of its
Subsidiaries, any Participation Facility or any Loan Property;
(c) Except as set forth in Section 4.19 of the
Company Disclosure Schedule, to the knowledge of the Company, during
the period of (x) the Company's or any of its Subsidiaries' ownership
or operation of any of their respective current or former properties,
(y) the Company's or any of its Subsidiaries' participation in the
management of any Participation Facility, or (z) the Company's or any
of its Subsidiaries' interest in a Loan Property, there has been no
release of Hazardous Materials in, on, under or affecting any such
property. To the knowledge of the Company, prior to the period of (x)
the Company's or any of its Subsidiaries' ownership or operation of any
of their respective current or former properties, (y) the Company's or
any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) the Company's or any of its
Subsidiaries' interest in a Loan Property, there was no release of
Hazardous Materials in, on, under or affecting any such property,
Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of
this Section 4.19: (x) "Hazardous Materials" means any chemicals,
pollutants, contaminants, wastes, toxic substances, petroleum or other
regulated substances or materials, (y) "Loan Property" means any
property in which the Company or any of its Subsidiaries holds a
security interest, and,
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where required by the context, said term means the owner or operator of
such property; and (z) "Participation Facility" means any facility in
which the Company or any of its Subsidiaries participates in the
management and, where required by the context, said term means the
owner or operator of such property.
4.20. Approvals. As of the date of this Agreement, the Company
knows of no reason why all regulatory approvals required for the consummation of
the transactions contemplated hereby (including, without limitation, the Merger)
should not be obtained.
4.21. Loan Portfolio.
(a) Except as set forth in Section 4.21 of the
Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any written or oral loan agreement, note or
borrowing arrangement (including, without limitation, leases, credit
enhancements, commitments, guarantees and interest-bearing assets)
(collectively, "Loans"), other than Loans the unpaid principal balance
of which does not exceed $100,000, under the terms of which the obligor
was, as of March 31, 1998, over 90 days delinquent in payment of
principal or interest or in default of any other provision. Section
4.21 of the Company Disclosure Schedule sets forth all of the Loans in
original principal amount in excess of $100,000 of the Company or any
of its Subsidiaries that as of March 31, 1998, were classified as
"Doubtful" or "Loss", or words of similar import, together with the
principal amount of and accrued and unpaid interest on each such Loan
and the identity of the borrower thereunder.
(b) Each Loan in original principal amount in excess
of $100,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii)
to the extent secured, has been secured by valid liens and security
interests which have been perfected and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
4.22. Property. Each of the Company and its Subsidiaries has
good and marketable title free and clear of all liens, encumbrances, mortgages,
pledges, charges, defaults or equitable interests to all of the properties and
assets, real and personal, tangible or intangible, which are reflected on the
consolidated statement of financial condition of the Company as of December 31,
1997 or acquired after such date, except (i) liens for taxes not yet due and
payable or contested in good faith by appropriate proceedings, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of business,
(iii) such imperfections of title, easements and encumbrances, if any, as do not
interfere with the use of the respective property as such property is used on
the date of this Agreement, (iv) for dispositions and encumbrances of, or on,
such properties or assets in the ordinary course of business or (v) mechanics',
materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other
similar liens and encumbrances arising in the ordinary course of business. All
leases pursuant to which the Company or any Subsidiary of the Company, as
lessee, leases real or personal property are valid and enforceable in accordance
with their respective terms and neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any other party thereto, is in default
thereunder.
4.23. Accounting for the Merger; Reorganization. As of the
date of this Agreement, the Company has no reason to believe that the Merger
will fail to qualify (i) for pooling-of-interests treatment under GAAP or (ii)
as a reorganization under Section 368(a) of the Code.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
Subject to Article III, Parent hereby represents and warrants
to the Company as follows:
5.1. Corporate Organization.
(a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Mississippi. Parent has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary. Parent is duly registered as a bank holding company under
the BHC Act. The Amended and Restated Articles of Incorporation and
By-laws of Parent, copies of which have previously been made available
to the Company, are true and correct copies of such documents as in
effect as of the date of this Agreement.
(b) BancorpSouth Bank is a Mississippi state bank
validly existing and in good standing. The deposit accounts of
BancorpSouth Bank are insured by the FDIC through the Bank Insurance
Fund or Savings Association Insurance Fund to the fullest extent
permitted by law, and all premiums and assessments required in
connection therewith have been paid when due. Each of Parent's other
Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each
Subsidiary of Parent has the corporate power and authority to own or
lease all of its properties and assets and to carry on its business as
it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of the business
conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification
necessary. The Articles of Association, by-laws and similar governing
documents of the BancorpSouth Bank, copies of which have previously
been made available to the Company, are true and correct copies of such
documents as in effect as of the date of this Agreement.
(c) The minute books of Parent and each of its
Subsidiaries contain true and correct records of all meetings and other
corporate actions held or taken since December 31, 1996 of their
respective shareholders and Boards of Directors (including committees
of their respective Boards of Directors).
5.2. Capitalization.
(a) The authorized capital stock of Parent consists
of 500,000,000 shares of Parent Common Stock. As of March 6, 1998,
there were 22,329,777 shares of Parent Common Stock issued and
outstanding, and as of December 31, 1997, 125,350 shares of Parent
Common Stock were held in Parent's treasury. As of the date of this
Agreement, no shares of Parent Common Stock were reserved for issuance,
except with respect to employee benefit plans, stock option plans, the
Parent's rights plan, and the stock dividend payable on May 15, 1998.
All of the issued and outstanding shares of Parent Common Stock have
been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. Except as referred to above with
respect to reserved shares and for the Parent's dividend reinvestment
plan, Parent does not have and is not bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character calling for the purchase or issuance of any shares of
Parent Common Stock or any other equity securities of Parent or any
securities
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representing the right to purchase or otherwise receive any shares of
Parent Common Stock. The shares of Parent Common Stock to be issued
pursuant to the Merger will be duly authorized and validly issued and,
at the Effective Time, all such shares will be fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof.
(b) Section 5.2(b) of the Parent Disclosure Schedule
sets forth a true and correct list of all of the Parent Subsidiaries as
of the date of this Agreement. Parent owns, directly or indirectly, all
of the issued and outstanding shares of capital stock of each of the
Subsidiaries of Parent, free and clear of all liens, charges,
encumbrances and security interests whatsoever, and all of such shares
are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement,
no Subsidiary of Parent has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of
any character with any party that is not a direct or indirect
Subsidiary of Parent calling for the purchase or issuance of any shares
of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any
shares of capital stock or any other equity security of such
Subsidiary.
5.3. Authority; No Violation.
(a) Parent has full corporate power and authority to
execute and deliver this Agreement and the Stock Option Agreement and
to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and the Stock Option Agreement
and the consummation of the transactions contemplated hereby and
thereby have been duly and validly approved by the Board of Directors
of Parent, and no other corporate proceedings on the part of Parent are
necessary to approve this Agreement and the Stock Option Agreement and
to consummate the transactions contemplated hereby and thereby. Each of
this Agreement and the Stock Option Agreement has been duly and validly
executed and delivered by Parent and (assuming due authorization,
execution and delivery by the Company) this Agreement constitutes a
valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this
Agreement or the Stock Option Agreement by Parent, nor the consummation
by Parent of the transactions contemplated hereby or thereby, nor
compliance by Parent with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Amended and Restated
Articles of Incorporation or By-Laws of Parent, or the articles of
incorporation or by-laws or similar governing documents of any of its
Subsidiaries or (ii) assuming that the consents and approvals referred
to in Section 5.4 are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to Parent or any of its Subsidiaries or any of
their respective properties or assets, or (y) violate, conflict with,
result in a breach of any provision of or the loss of any benefit
under, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under,
accelerate the performance required by, or result in the creation of
any lien, pledge, security interest, charge or other encumbrance upon
any of the respective properties or assets of Parent or any of its
Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which Parent or any of
its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected.
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5.4. Consents and Approvals. Except for (a) the filing of
applications and notices, as applicable, with the Federal Reserve Board under
the BHC Act and the FDIC under the FDIA, and approval of such applications and
notices, (b) such applications, filings, authorizations, orders and approvals as
may be required under applicable state law, (c) the filing with the SEC of the
Proxy Statement and the filing and declaration of effectiveness of the S-4, (d)
the filing of the Articles of Merger with the Mississippi Secretary and the
Mississippi Department, (e) such filings and approvals as are required to be
made or obtained under the securities or "Blue Sky" laws of various states in
connection with the issuance of the shares of Parent Common Stock pursuant to
this Agreement and (f) approval for listing of the Parent Common Stock to be
issued in the Merger on the NYSE, no consents or approvals of or filings or
registrations with any Governmental Entity or with any third party are necessary
in connection with (1) the execution and delivery by Parent of this Agreement
and (2) the consummation by Parent of the Merger and the other transactions
contemplated hereby.
5.5. Reports. Parent and each of its Subsidiaries have timely
filed all reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1996 with any Regulatory Agency, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of Parent and its Subsidiaries, no Regulatory Agency has initiated any
proceeding or, to the knowledge of Parent, investigation into the business or
operations of Parent or any of its Subsidiaries since December 31, 1996. There
is no unresolved violation, criticism, or exception by any Regulatory Agency
with respect to any report or statement relating to any examinations of Parent
or any of its Subsidiaries.
5.6. Financial Statements. Parent has previously made
available to the Company copies of the consolidated balance sheets of Parent and
its Subsidiaries as of December 31 for the fiscal years 1996 and 1997 and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the fiscal years 1996 through 1997, inclusive, as reported in
Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1996,
filed with the SEC under the Exchange Act, in each case accompanied by the audit
report of KPMG Peat Marwick LLP, independent public accountants with respect to
Parent. The December 31, 1997 consolidated balance sheet of Parent (including
the related notes, where applicable) fairly presents the consolidated financial
position of Parent and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 5.6 (including the related
notes, where applicable) fairly present and the financial statements to be filed
with the SEC after the date hereof will fairly present (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations and changes in shareholders'
equity and consolidated financial position of Parent and its Subsidiaries for
the respective fiscal periods or as of the respective dates therein set forth;
each of such statements (including the related notes, where applicable)
complies, and the financial statements to be filed with the SEC after the date
hereof will comply, with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto; and each of
such statements (including the related notes, where applicable) has been, and
the financial statements to be filed with the SEC after the date hereof will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q. The books and records of Parent and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
any other applicable legal and accounting requirements.
5.7. Broker's Fees. Neither Parent nor any Subsidiary of
Parent, nor any of their respective officers or directors, has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement or the Stock Option Agreement.
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5.8. Absence of Certain Changes or Events. Except as may be
disclosed in any Parent Report (as defined in Section 5.12) filed with the SEC
prior to the date of this Agreement, since December 31, 1997, there has been no
change or development or combination of changes or developments which,
individually or in the aggregate, has had a Material Adverse Effect on Parent.
5.9. Legal Proceedings.
(a) Except as set forth in the Company's annual
report on Form 10-K for the year ended December 31, 1997 or as
disclosed pursuant to Section 5.16 hereto, neither Parent nor any of
its Subsidiaries is a party to any and there are no pending or, to
Parent's knowledge, threatened, legal, administrative, arbitral or
other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Parent or any of its Subsidiaries
or challenging the validity or propriety of the transactions
contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree,
or regulatory restriction imposed upon Parent, any of its Subsidiaries
or the assets of Parent or any of its Subsidiaries.
5.10. Taxes. Except as set forth in Section 5.10 of the Parent
Disclosure Schedule, each of Parent and its Subsidiaries has (i) duly and timely
filed (including applicable extensions granted without penalty) all Tax Returns
required to be filed at or prior to the Effective Time, and such Tax Returns are
true and correct, and (ii) paid in full or made adequate provision in the
financial statements of Parent (in accordance with GAAP) for all Taxes shown to
be due on such Tax Returns. Except as set forth in Section 5.10 of the Parent
Disclosure Schedule, as of the date hereof, neither Parent nor any of its
Subsidiaries has requested any extension of time within which to file any Tax
Returns in respect of any fiscal year which have not since been filed and no
request for waivers of the time to assess any Taxes are pending or outstanding,
and as of the date hereof, with respect to each taxable period of Parent and its
Subsidiaries, the federal and state income Tax Returns of Parent and its
Subsidiaries have been audited by the Internal Revenue Service or appropriate
state tax authorities or the time for assessing and collecting income Tax with
respect to such taxable period has closed and such taxable period is not subject
to review.
5.11. Employees.
(a) Section 5.11(a) of the Parent Disclosure Schedule
sets forth a true and correct list of each deferred compensation plan,
incentive compensation plan, equity compensation plan, "welfare" plan,
fund or program (within the meaning of section 3(1) of the ERISA);
"pension" plan, fund or program (within the meaning of section 3(2) of
ERISA); each employment, termination or severance agreement; and each
other employee benefit plan, fund, program, agreement or arrangement,
in each case, that is sponsored, maintained or contributed to or
required to be contributed to as of the date of this Agreement (the
"Parent Plans") by Parent, any of its Subsidiaries or by any trade or
business, whether or not incorporated (a "Parent ERISA Affiliate"), all
of which together with Parent would be deemed a "single employer"
within the meaning of Section 4001 of ERISA, for the benefit of any
employee or former employee of Parent, any Subsidiary or any Parent
ERISA Affiliate.
(b) Each of the Parent Plans is in compliance with
the applicable provisions of the Code and ERISA; each of the Parent
Plans intended to be "qualified" within the meaning of section 401(a)
of the Code has received a favorable determination letter from the IRS
and to the knowledge of the Parent, nothing has occurred which could
reasonably be expected to result in the revocation of such letter; no
Parent Plan has an accumulated or waived funding deficiency within the
meaning of section 412 of the Code; neither Parent nor any Parent ERISA
Affiliate has incurred, directly or indirectly, any liability to or on
account
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of a Parent Plan pursuant to Title IV of ERISA (other than PBGC
premiums); to the knowledge of Parent no proceedings have been
instituted to terminate any Parent Plan that is subject to Title IV of
ERISA; no "reportable event," as such term is defined in section
4043(c) of ERISA, has occurred with respect to any Parent Plan (other
than a reportable event with respect to which the thirty day notice
period has been waived); no condition exists that presents a material
risk to Parent of incurring a liability to or on account of a Parent
Plan pursuant to Title IV of ERISA; no Parent Plan is a multiemployer
plan (within the meaning of section 4001(a)(3) of ERISA) and no Parent
Plan is a multiple employer plan as defined in Section 413 of the Code;
and there are no pending, or, to the knowledge of Parent, threatened or
anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Parent Plans or any trusts related
thereto.
5.12. SEC Reports. Parent has previously made available to the
Company a true and correct copy of each (a) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since December
31, 1996 by Parent with the SEC pursuant to the Securities Act or the Exchange
Act (the "Parent Reports") and (b) communication mailed by Parent to its
shareholders since December 31, 1996, and no such registration statement,
prospectus, report, schedule, proxy statement or communication contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date. Parent has timely filed all Parent Reports and other
documents required to be filed by it under the Securities Act and the Exchange
Act, and, as of their respective dates, all Parent Reports complied with the
published rules and regulations of the SEC with respect thereto.
5.13. Parent Information. The information relating to Parent
and its Subsidiaries to be contained in the Proxy Statement and the S-4, or in
any other document filed with any other regulatory agency in connection
herewith, will not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading. The Proxy Statement
(except for such portions thereof that relate only to the Company or any of its
Subsidiaries) will comply with the provisions of the Exchange Act and the rules
and regulations thereunder. The S-4 will comply with the provisions of the
Securities Act and the rules and regulations thereunder.
5.14. Compliance with Applicable Law. Parent and each of its
Subsidiaries holds, and has at all times held, all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and other than matters addressed by
Section 5.16 have complied with and are not in default in any respect under any,
applicable law, statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to Parent or any of its Subsidiaries and neither
Parent nor any of its Subsidiaries knows of, or has received notice of violation
of, any violations of any of the above.
5.15. Ownership of Company Common Stock; Affiliates and
Associates. As of the date hereof, neither Parent nor any of its affiliates or
associates (as such terms are defined under the Exchange Act) (i) beneficially
owns, directly or indirectly, or (ii) is a party to any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting or disposing of
any shares of capital stock of the Company (other than Trust Account Shares and
DPC Shares).
5.16. Agreements with Regulatory Agencies. Except as disclosed
to the Company orally or in writing, neither Parent nor any of its Subsidiaries
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding with, or
is a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of (each, a
"Parent Regulatory Agreement"), any
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Regulatory Agency or other Governmental Entity that restricts the conduct of its
business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Parent or any of its
Subsidiaries been advised by any Regulatory Agency or other Governmental Entity
that it is considering issuing or requesting any Parent Regulatory Agreement.
5.17. Environmental Matters.
(a) Each of Parent and its Subsidiaries and, to the
knowledge of Parent, each of the Participation Facilities and the Loan
Properties (each as hereinafter defined), are in compliance with all
Environmental Laws;
(b) There is no suit, claim, action or proceeding,
pending or, to the knowledge of Parent, threatened, before any
Governmental Entity or other forum in which Parent, any of its
Subsidiaries, any Participation Facility or any Loan Property, has been
or, with respect to threatened proceedings, may be, named as a
defendant (x) for alleged noncompliance (including by any predecessor)
with any Environmental Laws, or (y) relating to the release, threatened
release or exposure to any Hazardous Material whether or not occurring
at or on a site owned, leased or operated by Parent or any of its
Subsidiaries, any Participation Facility or any Loan Property;
(c) To the knowledge of Parent during the period of
(x) Parent's or any of its Subsidiaries' ownership or operation of any
of their respective current or former properties, (y) Parent's or any
of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Parent's or any of its Subsidiaries'
interest in a Loan Property, there has been no release of Hazardous
Materials in, on, under or affecting any such property. To the
knowledge of Parent, prior to the period of (x) Parent's or any of its
Subsidiaries' ownership or operation of any of their respective current
or former properties, (y) Parent's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (z)
Parent's or any of its Subsidiaries' interest in a Loan Property, there
was no release of Hazardous Materials in, on, under or affecting any
such property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of
this Section 5.17: (x) "Loan Property" means any property in which
Parent or any of its Subsidiaries holds a security interest, and, where
required by the context, said term means the owner or operator of such
property; and (y) "Participation Facility" means any facility in which
Parent or any of its Subsidiaries participates in the management and,
where required by the context, said term means the owner or operator of
such property.
5.18. Approvals. As of the date of this Agreement, Parent
knows of no reason why all regulatory approvals required for the consummation of
the transactions contemplated hereby (including, without limitation, the Merger)
should not be obtained.
5.19. Loan Portfolio.
(a) Except as set forth in Section 5.19 of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries is a
party to any written or oral Loan, other than Loans the unpaid
principal balance of which does not exceed $100,000, under the terms of
which the obligor was, as of March 31, 1998, over 90 days delinquent in
payment of principal or interest or in default of any other provision.
Section 5.19 of the Parent Disclosure Schedule sets forth all Loans in
original principal amounts in excess of $100,000 of Parent or any of
its Subsidiaries that were as of March 31, 1998, classified as
"Doubtful" or "Loss", or words of similar import, together with the
principal amount of and accrued and unpaid interest on each such Loan
and the identity of the borrower thereunder.
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(b) Each Loan in original principal amount in excess
of $100,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii)
to the extent secured, has been secured by valid liens and security
interests which have been perfected and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
5.20. Property. Each of Parent and its Subsidiaries has good
and marketable title free and clear of all liens, encumbrances, mortgages,
pledges, charges, defaults or equitable interests to all of the properties and
assets, real and personal, tangible or intangible, and which are reflected on
the consolidated statement of financial condition of Parent as of December 31,
1997 or acquired after such date, except (i) liens for taxes not yet due and
payable or contested in good faith by appropriate proceedings, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of business,
(iii) such imperfections of title, easements and encumbrances, if any, as do not
interfere with the use of the respective property as such property is used on
the date of this Agreement, (iv) for dispositions and encumbrances of, or on,
such properties or assets in the ordinary course of business or (v) mechanics',
materialmen's, workmen's, repairmen's, warehousemen's, carrier's and other
similar liens and encumbrances arising in the ordinary course of business. All
leases pursuant to which Parent or any Subsidiary of Parent, as lessee, leases
real or personal property are valid and enforceable in accordance with their
respective terms and neither Parent nor any of its Subsidiaries nor, to the
knowledge of Parent, any other party thereto is in default thereunder.
5.21. Accounting for the Merger; Reorganization. As of the
date of this Agreement, Parent has no reason to believe that the Merger will
fail to qualify (i) for pooling-of-interests treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. Covenants of the Company. During the period from the date
of this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Stock Option Agreement or with
the prior written consent of Parent, the Company and its Subsidiaries shall
carry on their respective businesses in the ordinary course consistent with past
practice. Without limiting the generality of the foregoing, and except as set
forth in Section 6.1 of the Company Disclosure Schedule or as otherwise
contemplated by this Agreement, the Stock Option Agreement or as consented to in
writing by Parent, the Company shall not, and shall not permit any of its
Subsidiaries to:
(a) with respect to the Company only, declare or pay
any dividends on, or make other distributions in respect of any of its
capital stock during any period, at a rate in excess of $0.325 per
share per quarter; provided, that if the aggregate dividends so paid
expressed as a percentage of Company's net income is less than the
amount paid in dividends by Parent expressed as a percentage of
Parent's net income, Company shall be permitted to pay a special
dividend equal to the difference between the two percentages;
(b) (i) repurchase, redeem or otherwise acquire (except for the
acquisition of Trust Account Shares and DPC Shares, as such terms are
defined in Section 1.4(b) hereof) any shares of the capital stock of
the Company or any Subsidiary of the Company, or any securities
convertible into or exercisable for any shares of the capital stock of
the Company or any Subsidiary of the Company, (ii) split, combine or
reclassify any shares of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of
or in substitution for shares of its capital stock, or (iii) issue,
deliver or sell, or authorize or
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propose the issuance, delivery or sale of, any shares of its capital
stock or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such shares, or enter into
any agreement with respect to any of the foregoing, except, in the case
of clauses (ii) and (iii), for the issuance of Company Common Stock (x)
upon the exercise or fulfillment of rights or options issued or
existing pursuant to employee benefit plans, programs or arrangements,
all to the extent outstanding and in existence on the date of this
Agreement and in accordance with their present terms or (y) pursuant to
the Stock Option Agreement;
(c) amend its Articles of Incorporation, By-laws or
other similar governing documents;
(d) authorize or permit any of its officers,
directors, employees or agents to directly or indirectly solicit,
initiate, facilitate or encourage any inquiries relating to, or the
making of any proposal which constitutes, a "takeover proposal" (as
defined below), or participate in any discussions or negotiations, or
provide third parties with any nonpublic information, relating to any
such inquiry or proposal or otherwise facilitate any effort or attempt
to make a takeover proposal; provided, however, that the Company may
communicate information about any such takeover proposal to its
shareholders if, in the judgment of the Company's Board of Directors,
based upon the advice of outside counsel, such communication is
required under applicable law, provided further, however, that the
Company may, and may authorize and permit its officers, directors,
employees or agents to, (i) provide or cause to be provided such
information, and (ii) participate in such discussions or negotiations,
if the Board of Directors of the Company, after having consulted with
and considered the advice of outside counsel, has determined that the
failure to do so could cause the members of such Board of Directors to
breach their fiduciary duties under applicable laws. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations previously conducted with any parties other
than Parent with respect to any of the foregoing. The Company will take
all actions necessary or advisable to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.1(d). The Company will notify
Parent immediately if any such inquiries or takeover proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued
with, the Company, and the Company will promptly (within 24 hours)
inform Parent in writing of all of the relevant details with respect to
the foregoing including the material terms and conditions of such
request or takeover proposal and the identity of the person or group
making such request or proposal. The Company will keep Parent fully
informed of the status and details (including amendments or proposed
amendments) of any such request or takeover proposal. As used in this
Agreement, "takeover proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination
involving the Company or any Subsidiary of the Company or any proposal
or offer to acquire in any manner a substantial equity interest in, or
a substantial portion of the assets of, the Company or any Subsidiary
of the Company other than the transactions contemplated or permitted by
this Agreement and the Stock Option Agreement;
(e) make any capital expenditures other than those
which are set forth in Section 6.1 of the Company Disclosure Schedule
or (i) are made in the ordinary course of business or are necessary to
maintain existing assets in good repair and (ii) in any event are in an
amount of no more than $100,000 in the aggregate;
(f) enter into any new line of business other than
the sale of annuities;
(g) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in
or a substantial portion of the assets of, or by any
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other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire
any assets, which would be material, individually or in the aggregate,
to the Company, or which could reasonably be expected to impede or
delay consummation of the Merger, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or
debt restructurings in the ordinary course of business consistent with
past practices;
(h) except as contemplated by Article III hereto,
take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VIII not being satisfied;
(i) change its methods of accounting in effect
December 31, 1997, except as required by changes in GAAP or regulatory
accounting principles as concurred to by the Company's independent
auditors;
(j) except as set forth in Section 7.7 hereof, as
required by applicable law or as required to maintain qualification
pursuant to the Code, (i) adopt, amend, or terminate any employee
benefit plan (including, without limitation, any Plan) or any
agreement, arrangement, plan or policy between the Company or any
Subsidiary of the Company and one or more of its current or former
directors, officers or (ii) except for normal increases in the ordinary
course of business consistent with past practice or except as required
by applicable law, increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not
required by any Plan or agreement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or
performance units or shares).
(k) take or permit to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting
purposes or a reorganization under Section 368(a) of the Code;
(l) other than activities in the ordinary course of
business consistent with past practice, sell, lease, encumber, assign
or otherwise dispose of, or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or other
rights or agreements;
(m) other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed
money or assume, guarantee, endorse or otherwise as an accommodation
become responsible for the obligations of any other individual,
corporation or other entity;
(n) file any application to relocate or terminate the
operations of any banking office of it or any of its Subsidiaries;
(o) create, renew, amend or terminate or give notice
of a proposed renewal, amendment or termination of, any material
contract, agreement or lease for goods, services or office space to
which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries or their respective properties is
bound, other than the renewal in the ordinary course of business of any
lease the term of which expires prior to the Closing Date, or amend or
waive the provisions of any confidentiality or standstill agreement to
which the Company or any of its affiliates is a party as of the date
hereof;
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(p) take any action or enter into any agreement that
could reasonably be expected to jeopardize or materially delay the
receipt of any Requisite Regulatory Approval (as defined in Section
8.1(c)); or
(q) agree or commit to do any of the foregoing.
6.2. Covenants of Parent. Except as otherwise contemplated by
this Agreement or consented to in writing by the Company, Parent shall not, and
shall not permit any of its Subsidiaries to:
(a) except as contemplated by Article III hereto,
take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this
Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article VIII not being satisfied;
(b) take any action or enter into any agreement that
could reasonably be expected to jeopardize or materially delay the
receipt of any Requisite Regulatory Approval;
(c) change its methods of accounting in effect at
December 31, 1997, except in accordance with changes in GAAP or
regulatory accounting principles as concurred to by Parent's
independent auditors;
(d) take or permit to be taken any action which would
disqualify the Merger as a "pooling of interests" for accounting
purposes or a reorganization under Section 368(a) of the Code; or
(e) agree or commit to do any of the foregoing.
6.3. Conduct of Parent's Business. During the period from the
date of this Agreement and continuing until the Effective Time, except as
expressly contemplated or permitted by this Agreement, or with the prior written
consent of the Company, Parent shall, and shall cause its Subsidiaries to, carry
on their respective businesses in the ordinary course consistent with past
practice.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. Regulatory Matters.
(a) Parent and the Company shall promptly prepare and
file with the SEC the Proxy Statement, and Parent shall promptly
prepare and file with the SEC the S-4, in which the Proxy Statement
will be included as a prospectus. Each of the Company and Parent shall
use its reasonable best efforts to have the S-4 declared effective
under the Securities Act as promptly as practicable after such filing,
and the Company shall thereafter mail the Proxy Statement to its
shareholders. Parent shall also use its reasonable best efforts to
obtain all necessary state securities law or "Blue Sky" permits and
approvals required to carry out the transactions contemplated by this
Agreement.
(b) The parties hereto shall cooperate with each
other and use their reasonable best efforts to promptly prepare and
file all necessary documentation, to effect all applications, notices,
petitions and filings, and to obtain as promptly as practicable all
permits, consents, approvals and authorizations of all third parties
and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including,
without limitation, the Merger). The Company and Parent shall
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have the right to review in advance, and to the extent practicable each
will consult the other on, in each case subject to applicable laws
relating to the exchange of information, all the information relating
to the Company or Parent, as the case may be, and any of their
respective Subsidiaries, which appears in any filing made with, or
written materials submitted to, any third party or any Governmental
Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties
hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to
consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(c) Parent and the Company shall, upon request,
furnish each other with all information concerning themselves, their
Subsidiaries, directors, officers and shareholders and such other
matters as may be reasonably necessary or advisable in connection with
the Proxy Statement, the S-4 or any other statement, filing, notice or
application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement.
(d) Parent and the Company shall promptly furnish
each other with copies of written communications received by Parent or
the Company, as the case may be, or any of their respective
Subsidiaries, Affiliates or Associates (as such terms are defined in
Rule 12b-2 under the Exchange Act as in effect on the date of this
Agreement) from, or delivered by any of the foregoing to, any
Governmental Entity in respect of the transactions contemplated hereby.
7.2. Access to Information.
(a) Upon reasonable notice and subject to applicable
laws relating to the exchange of information, each party shall, and
shall cause each of its Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives of the other
party, access during normal business hours during the period prior to
the Effective Time to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and
other representatives and, during such period, it shall, and shall
cause its Subsidiaries to, make available to the other party all
information concerning its business, properties and personnel as the
other party may reasonably request. Neither party nor any of its
Subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice
the rights of its customers, jeopardize any attorney-client privilege
or contravene any law, rule, regulation, order, judgment, decree,
fiduciary duty or binding agreement entered into prior to the date of
this Agreement. Such party shall identify the nature of the limitation
on access and disclosure, and the parties hereto will make appropriate
substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply.
(b) All information furnished to Parent pursuant to
Section 7.2(a) shall be subject to, and Parent shall hold all such
information in confidence in accordance with, the provisions of the
confidentiality agreement dated February 4, 1998 (the "Confidentiality
Agreement"), between Parent and the Company. The Company shall have the
same obligations to Parent under the Confidentiality Agreement with
respect to information furnished to the Company pursuant to Section
7.2(a) as if the Company were the receiving party under such
Confidentiality Agreement.
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(c) Notwithstanding anything in the Confidentiality
Agreement or any other agreement to the contrary, no investigation by
either of the parties or their respective representatives shall affect
the representations, warranties, covenants or agreements of the other
set forth herein and the parties shall remain responsible for the same.
7.3. Shareholder Meeting. The Company shall take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
shareholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval and
adoption of this Agreement. The Company will, through its Board of Directors,
recommend to its shareholders approval of this Agreement and the transactions
contemplated hereby and such other matters as may be submitted to its
shareholders in connection with this Agreement.
7.4. Legal Conditions to Merger. Each of Parent and the
Company shall, and shall cause its Subsidiaries to, use their reasonable best
efforts (a) to take, or cause to be taken, all actions necessary, proper or
advisable to comply promptly with all legal requirements which may be imposed on
such party or its Subsidiaries with respect to the Merger and, subject to the
conditions set forth in Article VIII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party which is
required to be obtained by the Company or Parent or any of their respective
Subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement, and to comply with the terms and conditions of
such consent, authorization, order or approval.
7.5. Affiliates. Each of Parent and the Company shall use its
reasonable best efforts to cause each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act
and for purposes of qualifying the Merger for "pooling-of-interests" accounting
treatment) of such party to deliver to the other party hereto, as soon as
practicable after the date of this Agreement, a written agreement, in the form
of Exhibit 7.5(a) hereto (in the case of affiliates of Parent) or Exhibit 7.5(b)
hereto (in the case of affiliates of the Company).
7.6. Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, as of the Effective Time.
7.7. Employee Benefit Plans; Existing Agreements.
(a) As of the Effective Time, the employees of the
Company and its Subsidiaries (the "Company Employees") shall be
eligible to participate in Parent's employee benefit plans in which
similarly situated employees of Parent or BancorpSouth Bank
participate, to the same extent as similarly situated employees of
Parent or BancorpSouth Bank (it being understood that inclusion of
Company Employees in Parent's employee benefit plans may occur at
different times with respect to different plans).
(b) With respect to each Parent Plan that is an
"employee benefit plan," as defined in Section 3(3)of ERISA, for
purposes of determining eligibility to participate, vesting, and
entitlement to benefits, including for severance benefits and vacation
entitlement (but not for accrual of pension benefits or 401(K)
eligibility), service with the Company (or predecessor employers to the
extent the Company provides past service credit) shall be treated as
service with Parent; provided; however, that such service shall not be
recognized to the extent that such recognition would result in a
duplication or increase of benefits. Such service also shall apply for
purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition
limitations. Each Parent Plan shall waive pre-existing condition
limitations to the same extent waived under the applicable Company
Plan. Company Employees shall be given credit
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for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, copayments and
out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the Parent Plan.
(c) As of the Effective Time, Parent shall assume and
honor and shall cause the appropriate Subsidiaries of Parent to assume
and to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements existing prior to
the execution of this Agreement which are between the Company or any of
its Subsidiaries and any director, officer or employee thereof and
which have been disclosed in the Company Disclosure Schedule.
(d) Parent and the Company agree to cooperate and
take all reasonable actions to effect the merger of any employee
benefit plan that is intended to be qualified under Section 401(a) of
the Code into the appropriate tax-qualified retirement plan of Parent
after the Merger is completed, so that such plan merger satisfies the
requirements of Section 414(l) of the Code; provided, however, that
Parent shall not be obligated to effect such a merger of a plan unless
such plan is fully funded under Section 412 of the Code and Section 302
of ERISA, to the extent applicable, and the merger would not jeopardize
the tax-qualified status of any Parent Plan.
7.8. Indemnification.
(a) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action,
suit, proceeding or investigation in which any person who is now, or
has been at any time prior to the date of this Agreement, or who
becomes prior to the Effective Time, a director, officer or employee of
the Company or any of its Subsidiaries (the "Indemnified Parties") is,
or is threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that
he is or was a director, officer or employee of the Company, any of the
Subsidiaries of the Company or any of their respective predecessors or
affiliates or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or
after the Effective Time, the parties hereto agree to cooperate and use
their best efforts to defend against and respond thereto. It is
understood and agreed that after the Effective Time, Parent shall
indemnify and hold harmless, as and to the extent permitted by law,
each such Indemnified Party against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and
expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by
applicable law), judgments, fines and amounts paid in settlement in
connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or
actual claim, action, suit, proceeding or investigation (whether
asserted or arising before or after the Effective Time), the
Indemnified Parties may retain counsel reasonably satisfactory to them
after consultation with Parent; provided, however, that (1) Parent
shall have the right to assume the defense thereof and upon such
assumption Parent shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense
thereof, except that if Parent elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises that there are
issues which raise conflicts of interest between Parent and the
Indemnified Parties, the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with Parent, and
Parent shall pay the reasonable fees and expenses of such counsel for
the Indemnified Parties, (2) Parent shall in all cases be obligated
pursuant to this paragraph to pay for only one firm of counsel for all
Indemnified Parties, (3) Parent shall not be liable for any settlement
effected without its prior written consent (which consent shall not be
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unreasonably withheld) and (4) Parent shall have no obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification
under this Section 7.8, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent thereof,
provided that the failure to so notify shall not affect the obligations
of Parent under this Section 7.8 except to the extent such failure to
notify materially prejudices Parent. Parent's obligations under this
Section 7.8 shall continue in full force and effect without time limit
from and after the Effective Time.
(b) Parent shall cause the persons serving as
officers and directors of the Company immediately prior to the
Effective Time to be covered for a period of three years from the
Effective Time by the directors' and officers' liability insurance
policy maintained by the Company (provided that Parent may substitute
therefor policies of at least the same coverage and amounts containing
terms and conditions which are not less advantageous than such policy)
with respect to acts or omissions occurring prior to the Effective Time
which were committed by such officers and directors in their capacity
as such; provided, however, that in no event shall Parent be required
to expend on an annual basis more than 125% of the current amount
expended by the Company (the "Insurance Amount") to maintain or procure
insurance coverage, and further provided that if Parent is unable to
maintain or obtain the insurance called for by this Section 7.8(b),
Parent shall use all reasonable efforts to obtain as much comparable
insurance as is available for the Insurance Amount.
(c) In the event Parent or any of its successors or
assigns (i) consolidates with or merges into any other person and shall
not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or
substantially all of its properties and assets to any person, then, and
in each such case, to the extent necessary, proper provision shall be
made so that the successors and assigns of Parent assume the
obligations set forth in this section.
(d) The provisions of this Section 7.8 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified
Party and his or her heirs and representatives.
7.9. Additional Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full title
to all properties, assets, rights, approvals, immunities and franchises of any
of the parties to the Merger, the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by Parent.
7.10. Coordination of Dividends. After the date of this
Agreement each of Parent and the Company shall coordinate with the other the
declaration of any dividends in respect of the Company Common Stock and the
record dates and payments dates relating thereto, it being the intention of the
parties that the holders of Company Common Stock may (to the extent allowed by
law and declared) receive one, but not more than one, dividend for any single
calendar quarter with respect to their shares of Company Common Stock and any
shares of Parent Common Stock any holder of Company Common Stock receives in
exchange therefor in the Merger.
7.11. Employment Agreements. [INTENTIONALLY OMITTED].
7.12. Year 2000. In the event the transactions contemplated
hereby are not consummated by March 31, 1999 or this Agreement is terminated
pursuant to Article IX hereof, Parent hereby agrees to provide on an arms-length
basis at fair market value consulting services,
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data processing, and related computer support to Company in connection with its
Year 2000 compliance program through December 31, 2000.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Shareholder Approvals. This Agreement shall have
been approved and adopted by the requisite vote of the shareholders of
the Company under applicable law.
(b) Listing of Shares. The shares of Parent Common
Stock which shall be issued to the shareholders of the Company upon
consummation of the Merger shall have been authorized for listing on
the NYSE, subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals
required to consummate the transactions contemplated hereby (including
the Merger) shall have been obtained and shall remain in full force and
effect and all statutory waiting periods in respect thereof shall have
expired (all such approvals and the expiration of all such waiting
periods being referred to herein as the "Requisite Regulatory
Approvals").
(d) S-4. The S-4 shall have become effective under
the Securities Act and no stop order suspending the effectiveness of
the S-4 shall have been issued and no proceedings for that purpose
shall have been initiated or threatened by the SEC.
(e) No Injunctions or Restraints; Illegality. No
order, injunction or decree issued by any court or agency of competent
jurisdiction or other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger.
8.2. Conditions to Obligations of Parent. The obligation of
Parent to effect the Merger is also subject to the satisfaction or waiver by
Parent at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) Subject to
Section 3.2, the representations and warranties of the Company set
forth in this Agreement (other than those set forth in Section 4.2)
shall be true and correct as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the
Closing Date; and (ii) the representations and warranties of the
Company set forth in Section 4.2 of this Agreement shall be true and
correct in all material respects (without giving effect to Section 3.2
of this Agreement) as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date.
Parent shall have received a certificate signed on behalf of the
Company by the Chief Executive Officer and the Chief Financial Officer
of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Parent shall have received a certificate signed
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on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to such effect.
(c) No Pending Governmental Actions. No proceeding
initiated by any Governmental Entity seeking an Injunction shall be
pending.
(d) Federal Tax Opinion. Parent shall have received
an opinion from Waller Lansden Dortch & Davis, PLLC, counsel to Parent
("Parent's Counsel"), in form and substance reasonably satisfactory to
Parent, dated the Effective Time, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code and that, accordingly, for
federal income tax purposes:
(i) No gain or loss will be recognized by
Parent or the Company as a result of the Merger;
(ii) No gain or loss will be recognized by
the shareholders of the Company who exchange all of their
Company Common Stock solely for Parent Common Stock pursuant
to the Merger (except with respect to cash received in lieu of
a fractional share interest in Parent Common Stock); and
(iii) The aggregate tax basis of the Parent
Common Stock received by shareholders who exchange all of
their Company Common Stock solely for Parent Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
In rendering such opinion, Parent's Counsel may require and
rely upon representations and covenants, including those contained in
certificates of officers of Parent, the Company and others, reasonably
satisfactory in form and substance to such counsel.
(e) Employment Agreements. Each of Howell N. Gage,
Jr. and Joel Horton shall have entered into written employment
agreements with Parent containing non-competition provisions
satisfactory to the Parent in its reasonable discretion.
8.3. Conditions to Obligations of the Company. The obligation
of the Company to effect the Merger is also subject to the satisfaction or
waiver by the Company at or prior to the Effective Time of the following
conditions:
(a) Representations and Warranties. (i) Subject to
Section 3.2, the representations and warranties of Parent set forth in
this Agreement (other than those set forth in Section 5.2) shall be
true and correct as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date;
and (ii) the representations and warranties of Parent set forth in
Section 5.2 of this Agreement shall be true and correct in all material
respects (without giving effect to Section 3.2 of this Agreement) as of
the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. The Company
shall have received a certificate signed on behalf of Parent by the
Chief Executive Officer and the principal financial officer of Parent
to the foregoing effect.
(b) Performance of Obligations of Parent. Parent
shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or
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prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent by the Chief Executive Officer
and the principal financial officer of Parent to such effect.
(c) No Pending Governmental Actions. No proceeding
initiated by any Governmental Entity seeking an Injunction shall be
pending.
(d) Federal Tax Opinion. The Company shall have
received an opinion from Gerrish & McCreary, P.C. (the "Company's
Counsel"), in form and substance reasonably satisfactory to the
Company, dated the Effective Time, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Code and that, accordingly, for
federal income tax purposes:
(i) No gain or loss will be recognized by
Parent or the Company as a result of the Merger;
(ii) No gain or loss will be recognized by
the shareholders of the Company who exchange all of their
Company Common Stock solely for Parent Common Stock pursuant
to the Merger (except with respect to cash received in lieu of
a fractional share interest in Parent Common Stock); and
(iii) The aggregate tax basis of the Parent
Common Stock received by shareholders who exchange all of
their Company Common Stock solely for Parent Common Stock
pursuant to the Merger will be the same as the aggregate tax
basis of the Company Common Stock surrendered in exchange
therefor (reduced by any amount allocable to a fractional
share interest for which cash is received).
In rendering such opinion, the Company's Counsel may require
and rely upon representations and covenants, including those contained in
certificates of officers of Parent, the Company and others, reasonably
satisfactory in form and substance to such counsel.
(e) Fairness Opinion. Prior to the mailing of the
Company proxy statement, the Company shall have received an opinion
from Southard Financial to the effect that as of the date thereof and
based upon and subject to the matters set forth therein, the Merger is
fair to the shareholders of the Company from a financial point of view.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the shareholders of both the Company
and Parent:
(a) by mutual consent of the Company and Parent in a
written instrument, if the Board of Directors of each so determines by
a vote of a majority of the members of its entire Board;
(b) By either Parent or the Company upon written
notice to the other party (i) 60 days after the date on which any
request or application for a Requisite Regulatory Approval shall have
been denied or withdrawn at the request or recommendation of the
Governmental Entity which must grant such Requisite Regulatory
Approval, unless within the 60-day period following such denial or
withdrawal a petition for rehearing or an
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amended application has been filed with the applicable Governmental
Entity, provided, however, that no party shall have the right to
terminate this Agreement pursuant to this Section 9.1(b)(i) if such
denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth herein or
(ii) if any Governmental Entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting
the Merger;
(c) by either Parent or the Company if the Merger
shall not have been consummated on or before March 31, 1999, unless the
failure of the Closing to occur by such date shall be due to the
failure of the party seeking to terminate this Agreement to perform or
observe the covenants and agreements of such party set forth herein;
(d) by either Parent or the Company (provided that
the Company may not terminate if it is in material breach of any of its
obligations under Section 7.3) if any approval of the shareholders of
the Company required for the consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a
duly held meeting of such shareholders or at any adjournment or
postponement thereof;
(e) by either Parent or the Company (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein)
if any of the representations or warranties set forth in this Agreement
on the part of the other party shall be untrue or incorrect in any
material respect, which is not cured within thirty days following
written notice to the party making such representation, or which, by
its nature, cannot be cured prior to the Closing; provided, however,
that neither party shall have the right to terminate this Agreement
pursuant to this Section 9.1(e) unless the representation or warranty,
together with all other representations and warranties that are untrue
or incorrect, would entitle the party receiving such representation not
to consummate the transactions contemplated hereby under Section 8.2(a)
(in the case of a representation or warranty by the Company) or Section
8.3(a) (in the case of a representation or warranty by Parent);
(f) by either Parent or the Company (provided that
the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein)
if there shall have been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of the other party,
which breach shall not have been cured within thirty days following
receipt by the breaching party of written notice of such breach from
the other party hereto, or which breach, by its nature, cannot be cured
prior to the Closing; or
(g) by the Board of Directors of Parent, if the Board
of Directors of the Company shall have failed to recommend in the Proxy
Statement that the Company's shareholders approve and adopt this
Agreement, or shall have withdrawn, modified or changed in a manner
adverse to Parent its approval or recommendation of this Agreement and
the transactions contemplated hereby.
9.2. Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except (i) Sections
7.2(b), 9.2 and 10.3 shall survive any termination of this Agreement and (ii)
that notwithstanding anything to the contrary contained in this Agreement, no
party shall be relieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
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9.3. Amendment. Subject to compliance with applicable law,
this Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
shareholders of the Company; provided, however, that after any approval of the
transactions contemplated by this Agreement by the Company's shareholders, there
may not be, without further approval of such shareholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Company shareholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4. Extension; Waiver. At any time prior to the Effective
Time, each of the parties hereto, by action taken or authorized by its Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument
signed on behalf of such party, but such extension or waiver or failure to
insist on strict compliance with an obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.
ARTICLE X
GENERAL PROVISIONS
10.1. Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") will take place at 10:00
a.m. (Central Standard Time) on the first day which is (a) the last business day
of month and (b) at least two business days after the satisfaction or waiver
(subject to applicable law) of the last to occur of the conditions set forth in
Article VIII hereof (other than those conditions which relate to actions to be
taken at the Closing) (the "Closing Date"), at Waller Lansden Dortch & Davis,
PLLC, 511 Union Street, Suite 2100, Nashville, Tennessee 37219, or at such other
time, date and place as is agreed to by the parties hereto.
10.2. Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties, covenants and agreements in
this Agreement or in any instrument delivered pursuant to this Agreement (other
than pursuant to the Stock Option Agreement which shall terminate in accordance
with its terms) shall survive the Effective Time, except for those covenants and
agreements contained herein and therein which by their terms apply in whole or
in part after the Effective Time.
10.3. Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
10.4. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation), mailed by registered or certified mail (return
receipt requested) or delivered by an express courier (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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(a) if to Parent, to:
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
Attention: Aubrey B. Patterson
with a copy (which shall not constitute
notice) to:
Waller Lansden Dortch & Davis
A Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: Ralph W. Davis, Esq.
and
(b) if to the Company, to:
Merchants Capital Corporation
820 South Street
Vicksburg, Mississippi 39180
Attention: Howell N. Gage, Jr.
with a copy (which shall not constitute
notice) to:
Gerrish & McCreary, P.C.
700 Colonial Road
Suite 200
Memphis, Tennessee 38117
Attn: Jeffrey C. Gerrish, Esq.
10.5. Interpretation. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of or Exhibit or Schedule to this Agreement unless otherwise indicated
in such specific provision. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The phrases "the date of this
Agreement", "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to May 2, 1998.
10.6. Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same instrument and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
10.7. Entire Agreement. This Agreement (including the
documents and the instruments referred to herein) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, other
than the Stock Option Agreement and the Confidentiality Agreement.
10.8. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Mississippi, without
regard to its principles of conflicts of laws.
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10.9. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in
7.2(b) of this Agreement were not performed in accordance with its specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of Section
7.2(b) of this Agreement and to enforce specifically the terms and provisions
thereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.10. Severability. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
10.11. Publicity. Except as otherwise required by law or the
rules of the NYSE, so long as this Agreement is in effect, neither Parent nor
the Company shall, or shall permit any of its Subsidiaries to, issue or cause
the publication of any press release or other public announcement with respect
to, or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party, which
such consent shall not be unreasonably withheld.
10.12. Assignment; Third Party Beneficiaries. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns. Except
as otherwise expressly provided herein, this Agreement (including the documents
and instruments referred to herein) is not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
[NEXT PAGE IS SIGNATURE PAGE.]
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IN WITNESS WHEREOF, Parent and the Company have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
BANCORPSOUTH, INC.
By: /s/ AUBREY B. PATTERSON
--------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
MERCHANTS CAPITAL CORPORATION
By: /s/ HOWELL N. GAGE
--------------------------------------
Name: Howell N. Gage
Title: Chairman and Chief Executive Officer
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ANNEX B
MISSISSIPPI BUSINESS CORPORATION ACT
ARTICLE 13
DISSENTERS' RIGHTS
SUBARTICLE A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
79-4-13.01 DEFINITIONS -- In this Article:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring corporation
by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 79-4-13.02 and who exercises that right when
and in the manner required by Sections 79-4-13.20 through 79-4-13.28.
(3) "Fair value," with respect to a dissenter's shares, means
the value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a rate that is
fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares
are registered in the records of a corporation or the beneficial owner of shares
to the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder.
79-4-13.02 RIGHT TO DISSENT. -
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporate
action:
(1) Consummation of a plan of merger to which the corporation
is a party (i) if shareholder approval is required for the merger by Section
79-4-11.03 or the articles of incorporation and the shareholder is entitled to
vote on the merger, or (ii) if the corporation is a subsidiary that is merged
with its parent under Section 79-4-11.04;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
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(3) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than in the usual
and regular course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one (1) year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it:
(i) Alters or abolishes a preferential right of the
shares;
(ii) Creates, alters or abolishes a right in respect
of redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting rights; or
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fraction share so created is to be
acquired for cash under Section 79-4-6.04; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent the articles of incorporation, bylaws or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) Nothing in subsection (a)(4) shall entitle a shareholder of a
corporation to dissent and obtain payment for his shares as a result of an
amendment of the articles of incorporation exclusively for the purpose of either
(i) making such corporation subject to application of the Mississippi Control
Share Act, or (ii) making such act inapplicable to a control share acquisition
of such corporation.
(c) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
79-4-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. -
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
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(2) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
79-4-13.20 NOTICE OF DISSENTERS' RIGHTS. -
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Section
79-4-13.02 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
79-4-13.22.
79-4-13.21 NOTICE OF INTENT TO DEMAND PAYMENT. -
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (1) must deliver to the
corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated, and (2) must not
vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirement of subsection
(a) is not entitled to payment for his shares under this article.
79-4-13.22 DISSENTERS' NOTICE. -
(a) If proposed corporate action creating dissenters' rights under
Section 79-4-13.02 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 79-4-13.21.
(b) The dissenters' notice must be sent no later than ten (10) days
after the corporate action was taken, and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before that date;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty (30) nor more that sixty
(60) days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
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79-4-13.23 DUTY TO DEMAND PAYMENT. -
(a) A shareholder sent a dissenters' notice described in Section
79-4-13.22 must demand payment, certify whether he acquired beneficial ownership
of the shares before the date required to be set forth in the dissenter's notice
pursuant to Section 79-4-13.22(b)(3), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his shares under
subsection (a) retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
79-4-13.24 SHARE RESTRICTIONS. -
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Section 79-4-13.26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
79-4-13.25 PAYMENT. -
(a) Except as provided in Section 79-4-13.27, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with Section 79-4-13.23 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders' equity
for that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment
under Section 79-4-13.28; and
(5) A copy of this article.
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79-4-13.26 FAILURE TO TAKE ACTION. -
(a) If the corporation does not take the proposed action within sixty
(60) days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 79-4-13.22 and repeat the payment demand
procedure.
79-4-13.27 AFTER-ACQUIRED SHARES. -
(a) A corporation may elect to withhold payment required by Section
79-4-13.25 from a dissenter unless he was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the interest was calculated and
a statement of the dissenter's right to demand payment under Section 79-4-13.28.
79-4-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER. --
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 79-4-13.25), or reject
the corporation's offer under Section 79-4-13.27 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section
79-4-13.25 or offered under Section 79-4-13.27 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section
79-4-13.25 within sixty (60) days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty (60) days after the
date set for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
within thirty (30) days after the corporation made or offered payment for his
shares.
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SUBARTICLE C. JUDICIAL APPRAISAL OF SHARES
79-4-13.30 COURT ACTION. -
(a) If a demand for payment under Section 79-4-13.28 remains unsettled,
the corporation shall commence a proceeding within sixty (60) days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60-day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the chancery court
of the county where a corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters (whether or not residents
of this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or more
persons as appraisers to receive evidence and recommend decision on the question
of fair value. The appraisers have the powers described in the order appointing
them, or in any amendment to it. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under Section 79-4-13.27.
79-4-13.31 COURT COSTS AND COUNSEL FEES. -
(a) The court in an appraisal proceeding commenced under Section
79-4-13.30 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under Section 79-4-13.28.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply with
the requirements of Sections 79-4-13.20 through 79-4-13.28; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously or not in good faith with
respect to the rights provided by this article.
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(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
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ANNEX C
FAIRNESS OPINION
MERGER BY AND BETWEEN
BANCORPSOUTH, INC.
AND
MERCHANTS CAPITAL CORPORATION
REPORT DATED
AUGUST 20, 1998
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August 20, 1998
Board of Directors
Merchants Capital Corporation
Vicksburg, Mississippi
RE: FAIRNESS OPINION RELATIVE TO PROPOSED AGREEMENT OF MERCHANTS
CAPITAL CORPORATION, VICKSBURG, MISSISSIPPI, TO MERGE WITH AND
INTO BANCORPSOUTH, INC., TUPELO, MISSISSIPPI
Directors:
The Board of Directors of Merchants Capital Corporation ("Merchants") retained
Southard Financial, in its capacity as a financial valuation and consulting
firm, to render its opinion of the fairness, from a financial viewpoint, of the
acquisition of Merchants by BancorpSouth, Inc. ("BancorpSouth"). Southard
Financial and its principals have no past, present, or future contemplated
financial, equity, or other interest in either Merchants or BancorpSouth. This
opinion is issued based upon financial data as of December 31, 1997 and June 30,
1998.
APPROACH TO ASSIGNMENT
The approach to this assignment was to consider the following factors:
- A review of the financial performance and position of
Merchants and the value of its common stock;
- A review of the financial performance and position of
BancorpSouth and the value of its common stock;
- A review of recent Bank merger transactions in the United
States, Mississippi, and nearby states;
- A review of the current and historical market prices of bank
holding companies in the United States, Mississippi, and
nearby states;
- A review of the investment characteristics of the common stock
of Merchants and BancorpSouth;
- A review of the Agreement and Plan of Merger, dated May 2,
1998, between Merchants and BancorpSouth;
- An evaluation of the impact of the merger on the expected
return to the current shareholders of Merchants; and,
- An evaluation of other factors as was considered necessary to
render this opinion.
It is Southard Financial's understanding that the merger and resulting exchange
of the stock of BancorpSouth for the outstanding common stock of Merchants
constitute a non-taxable exchange for federal income tax purposes. The exchange
of cash for fractional shares may have tax consequences.
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Board of Directors
Merchants Capital Corporation
Page 2
DUE DILIGENCE REVIEW PROCESS
In performing this assignment, Southard Financial reviewed the documents
specifically outlined in Exhibit 1 pertaining to Merchants and in Exhibit 2
pertaining to BancorpSouth.
REVIEW OF MERCHANTS CAPITAL CORPORATION
Southard Financial visited with the management of Merchants in Vicksburg,
Mississippi. Discussions included questions regarding the current and historical
financial position and performance of Merchants, its outlook for the future, and
other pertinent factors. Details pertaining to Merchants are contained in
Southard Financial's file.
REVIEW OF BANCORPSOUTH, INC.
Southard Financial visited with the management of BancorpSouth in Tupelo,
Mississippi. Discussions included questions regarding the current and historical
financial position and performance of BancorpSouth and its operating
subsidiaries, its outlook for the future, and other pertinent factors. Details
pertaining to BancorpSouth are contained in Southard Financial's file.
MERGER DOCUMENTATION
Southard Financial reviewed the proposed merger terms with the management of
Merchants and with legal counsel for Merchants. Southard Financial reviewed the
Agreement and Plan of Merger (the "Agreement") dated May 2, 1998. The analysis
in this opinion reflects the proposed merger terms as outlined in Exhibit 3,
Terms of the Agreement and Plan of Merger.
Southard Financial did not independently verify the information reviewed, but
relied on such information as being complete and accurate in all material
respects. Southard Financial did not make any independent evaluation of the
assets of BancorpSouth or Merchants, but reviewed data supplied by the
management of both institutions.
MAJOR CONSIDERATIONS
Numerous factors were considered in the overall review of the proposed merger.
The review process included considerations regarding Merchants, BancorpSouth,
and the proposed merger. The major considerations are:
MERCHANTS CAPITAL CORPORATION
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in Merchants' market;
- The competitive environment in Merchants' market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in Merchants' common stock; and,
- Other such factors as were deemed appropriate in rendering this
opinion.
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Board of Directors
Merchants Capital Corporation
Page 3
BANCORPSOUTH, INC.
- Historical earnings;
- Historical dividend payments;
- Outlook for future performance, earnings, and dividends;
- Economic conditions and outlook in BancorpSouth's market;
- The competitive environment in BancorpSouth's market;
- Comparisons with peer banks;
- Potential risks in the loan and securities portfolios;
- Recent minority stock transactions in BancorpSouth's common stock;
and,
- Other such factors as were deemed appropriate in rendering this
opinion.
COMMON FACTORS
- Historical and current bank merger pricing; and,
- Current market prices for minority blocks of common stocks of
regional bank holding companies in the United States, Mississippi,
and nearby states.
THE PROPOSED MERGER
- The terms of the Agreement as described herein;
- The specific pricing of the merger;
- Adequacy of the consideration paid to the shareholders of Merchants;
- The assumption that the merger will be treated as a tax-free
exchange;
- The amount of debt and goodwill on the balance sheet of BancorpSouth
and the impact of the merger of Merchants on BancorpSouth's capital
and liquidity positions;
- The historical dividend payments of BancorpSouth and the likely
impact on the dividend income of the current shareholders of
- Merchants (equivalency of cash dividends);
Pro-forma combined income statements for BancorpSouth post merger
and the expected returns to Merchants shareholders (equivalency of
earnings yield);
- The market for minority blocks of BancorpSouth common stock; and,
Other such factors as deemed appropriate.
OVERVIEW OF FAIRNESS ANALYSIS
In connection with rendering its opinion, Southard Financial performed a variety
of financial analyses, which are summarized below. Southard Financial believes
that its analyses must be considered as a whole and that considering only
selected factors could create an incomplete view of the analyses and the process
underlying the opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not susceptible to partial
analyses.
In its analyses, Southard Financial made numerous assumptions, many of which are
beyond the control of Merchants and BancorpSouth. Any estimates contained in the
analyses prepared by Southard Financial are not necessarily indicative of future
results or values, which may vary significantly from such estimates. Estimates
of value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. None of the
analyses performed by Southard Financial was assigned a greater significance
than any other. More details on the analyses prepared by Southard Financial are
contained in Exhibits 3-5.
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Board of Directors
Merchants Capital Corporation
Page 4
FAIRNESS OF THE MERGER PRICE
ANALYSIS OF MARKET TRANSACTIONS
Based upon the merger terms, Merchants shareholders will receive about 323% of
Merchants book value at June 30, 1998, 21.0 times trailing 12-month Merchants
earnings through June 30, 1998, and 28.4% of Merchants assets at June 30, 1998.
Based upon the review conducted by Southard Financial, the pricing for Merchants
in the merger is within the range of multiples seen in recent bank acquisitions
(see Exhibit 5). Further, the merger pricing compares favorably to recent
transactions in Mississippi during the past two years. Finally, the merger price
represents a significant premium to the most recent transaction prices for
Merchants stock.
ANALYSIS OF LIQUIDITY
Unlike Merchants stock, BancorpSouth shares are traded on the New York Stock
Exchange (NYSE) under the ticker symbol "BXS". The stock is actively traded, has
several institutional holders, and is followed by at least four investment
analysts. Finally, except in the case of certain officers, directors, and
significant shareholders of Merchants, BancorpSouth shares received will be
freely tradable with no restrictions.
ANALYSIS OF ALTERNATIVES
In November of 1997, the Board of Merchants decided to investigate the possible
sale of Merchants and appointed a three-member acquisition committee to work
with Merchants' counsel in the sale process. Marketing materials were prepared
and approved by the acquisition committee and delivered to several select
institutions that, because of their acquisition strategy and activity, were
likely to be the most viable candidates to make an acquisition of Merchants. The
acquisition committee received non-binding expressions of interest from four of
those institutions contacted. The non-binding expressions of interest set forth
offers ranging from 16-19 times Merchants' 1997 earnings and from 259%-306% of
Merchants' book value at December 31, 1997. Three of the four institutions were
invited to perform due diligence. Two of the three performed due diligence and
all three resubmitted more formal offers. Two of the three offers were simply
re-affirmations of the initial offers, while BancorpSouth raised its offer.
Southard Financial believes that the Board followed a well thought out and
organized approach to market Merchants in a manner that would result in the best
offer for shareholders. This fact is a key consideration in this fairness
opinion.
SUMMARY OF ANALYSES
The summary set forth does not purport to be a complete description of the
analyses performed by Southard Financial. The analyses performed by Southard
Financial are not necessarily indicative of actual values, which may differ
significantly from those suggested by such analyses. Southard Financial did not
appraise any individual assets or liabilities of Merchants or BancorpSouth.
Throughout the due diligence process, all information provided by Merchants,
BancorpSouth, and third party sources was relied upon by Southard Financial
without independent verification.
Based upon the analyses discussed above and other analyses performed by Southard
Financial, the impact of the merger on the shareholders of Merchants is expected
to be favorable.
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Board of Directors
Merchants Capital Corporation
Page 5
FAIRNESS OPINION
Based upon the analyses of the foregoing and such matters as were considered
relevant, it is the opinion of Southard Financial that the terms of the offer
for the acquisition of Merchants Capital Corporation by BancorpSouth, Inc.
pursuant to the Agreement and Plan of Merger are fair, from a financial
viewpoint, to the shareholders of Merchants Capital Corporation.
Thank you for this opportunity to be of service to the shareholders of Merchants
Capital Corporation.
Sincerely yours,
SOUTHARD FINANCIAL
Attachments:
Exhibit 1: Merchants Capital Corporation, Document Review List
Exhibit 2: BancorpSouth, Inc., Document Review List
Exhibit 3: Terms of the Agreement and Plan of Merger
Exhibit 4: Overview of the Expected Impact on Merchants Shareholders
Exhibit 5: Comparison of the Merger Pricing to Public Market Transactions
Exhibit 6: Qualifications of Southard Financial
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EXHIBIT 1
MERCHANTS CAPITAL CORPORATION
DOCUMENT REVIEW LIST
1. Summarized unaudited financial data of Merchants Capital Corporation
for the six-month period ended June 30, 1998.
2. Consolidated Comparative Statement of Income and Expenses and
Comparative Statement of Condition of Merchants Capital Corporation for
the period ended March 31, 1998.
3. Uniform Bank Performance Report of Merchants Bank for the period ended
September 30, 1997.
4. Bank Holding Company Performance Report of Merchants Capital
Corporation for the period ended September 30, 1997.
5. Annual Report (with audited financial statements) of Merchants Capital
Corporation for the years ended December 31, 1996-97.
6. List of stock options to purchase the common stock of Merchants Capital
Corporation.
7. Additional pertinent information deemed necessary to render this
opinion.
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EXHIBIT 2
BANCORPSOUTH, INC.
DOCUMENT REVIEW LIST
1. Summarized unaudited financial data of BancorpSouth, Inc. for the
six-month period ended June 30, 1998.
2. SEC Form 10-K of BancorpSouth, Inc. for the year ended December 31,
1997.
3. Annual Reports of BancorpSouth, Inc. for the years ended December 31,
1996-97, including audited consolidated financial statements.
4. Analyst reports on BancorpSouth, Inc. by The Robinson-Humphrey Company,
Inc., Sterne, Agee & Leach, Inc., and Keefe, Bruyette & Woods, Inc.
5. Proxy Statement of BancorpSouth, Inc. dated March 24, 1998.
6. News Release announcing BancorpSouth, Inc.'s first quarter 1998
earnings, dated April 15, 1998.
7. Additional pertinent information deemed necessary to render this
opinion.
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EXHIBIT 3
TERMS OF THE
AGREEMENT AND PLAN OF MERGER
The discussion below is based upon our understanding of the key financial terms
that are contained in the definitive agreement by and between BancorpSouth, Inc.
and Merchants Capital Corporation (the "Agreement").
In exchange for each share of Merchants common stock outstanding, Merchants
shareholders will receive 3.768 shares (the "Exchange ratio") of BancorpSouth
common stock. Certificates previously representing shares of Merchants common
stock shall be exchanged for certificates representing whole shares of
BancorpSouth common stock and cash in lieu of fractional shares.
An option granted by Merchants to purchase a share which is outstanding and
unexercised immediately prior shall cease to represent a right to purchase
Merchants stock and shall be replaced by an option issued under the appropriate
stock option plan of BancorpSouth. The number of new options shall be equal to
the product of the number of shares of Merchants subject to the original option
and the exchange ratio, provided that any fractional shares of BancorpSouth
shall be rounded down to the nearest whole share. The exercise price per share
of BancorpSouth common stock under the new option shall be equal to the exercise
price per share of Merchants common stock under the original option divided by
the exchange ratio, provided that such exercise price shall be rounded up to the
nearest cent. The duration and terms of the new option shall be the same as the
original option except that all references to Merchants shall be deemed to be
references to BancorpSouth.
The parties intend for the merger to qualify as a "reorganization" under the
Internal Revenue Code. Thus, the exchange of Merchants stock for BancorpSouth
stock is expected to qualify as a tax-free exchange for Federal income tax
purposes. The exchange of cash for fractional shares may have tax consequences.
No fractional shares will be issued by BancorpSouth. Instead, each former
shareholder of Merchants will receive an amount in cash determined by
multiplying $22.5625 by the fraction of a share of BancorpSouth that such holder
would otherwise be entitled to receive.
The Agreement may be terminated by either party:
- upon the mutual consent of each institution;
- by either party upon written notice to the other party 60 days
after the date on which any application for a Requisite
Regulatory Approval shall have been denied, unless within the
60-day period, a petition for rehearing or an amended application
has been filed;
- upon a breach by either party of any representation, warranty,
obligation, or covenant;
- if the merger is not consummated on or before March 31, 1999 or
such later date as the parties may agree upon;
- if the merger is not approved by the shareholders of Merchants;
- by either party if any of the representations or warranties set
forth in the Agreement shall be untrue or incorrect in any
material respect;
- by the Board of Directors of BancorpSouth if the Board of
Directors of Merchants shall have failed to recommend in the
Proxy Statement that Merchants' shareholders approve and adopt
this Agreement;
- under the terms and conditions as set forth in the Agreement.
If, before the Effective Date, BancorpSouth changes the number of its shares
issued and outstanding as a result of a stock split, stock dividend,
recapitalization or similar transaction, the Exchange Ratio shall be adjusted
proportionally.
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EXHIBIT 4
OVERVIEW OF THE EXPECTED IMPACT
ON MERCHANTS SHAREHOLDERS
The following is a summary of the various analyses undertaken in conjunction
with this fairness opinion. This summary is not intended to represent all
analyses performed by Southard Financial, but is presented here for the
convenience of Merchants and its shareholders.
According to the Agreement, the Exchange Ratio is 3.768 shares of BancorpSouth
common stock for each share of Merchants common stock outstanding. The following
analysis focuses on the total consideration to be paid in the merger. Further,
the analysis takes into account the two-for-one stock split by BancorpSouth
effective May 15, 1998.
EARNINGS: Merchants reported earnings of $4.04 per share (diluted) in 1997.
BancorpSouth reported earnings of $1.01 per share (diluted) in 1997. Based upon
the exchange ratio as derived above, had the merger been consummated prior to
January 1, 1997, each former Merchants share would have earned $3.81 in 1997
(BancorpSouth 1997 earnings of $1.01 times 3.768 equivalent shares). This
represents a 5.7% decrease from Merchants' reported earnings for 1997.
Merchants reported diluted earnings of $4.05 per share for the trailing twelve
month period ended June 30, 1998, while BancorpSouth earned $1.07 per share
(diluted) for the same period. Based upon the exchange ratio, had the merger
been consummated prior to June 30, 1997, each former Merchants share would have
earned $4.03 (BancorpSouth trailing twelve-month earnings of $1.07 times 3.768
equivalent shares). This represents a slight dilution in earnings. However, it
must be noted that the long-term outlook for earnings growth is better, in our
opinion, for BancorpSouth than for Merchants. This long-term outlook for growth
is a key factor. Further, the merger is expected to be slightly accretive to
earnings in 1998 (see below).
Merchants is expected to earn $4.44 per share in 1998, while BancorpSouth is
expected to earn $1.20 per share in 1998. Based upon the exchange ratio, had the
merger been consummated prior to January 1, 1998, each former Merchants share
would be expected to earn $4.52 in 1998 (BancorpSouth expected earnings of $1.20
times 3.768 equivalent shares). This would represent a slight accretion in
earnings for Merchants shareholders.
DIVIDENDS: The shareholders of Merchants received cash dividends of $1.93 per
share in 1997, while BancorpSouth shareholders received cash dividends of $0.395
per share in 1997. Based upon the exchange ratio, had the merger been
consummated prior to January 1, 1997, each former Merchants share would have
received dividends of $1.49 in 1997 (BancorpSouth 1997 dividends of $0.395 times
3.768 equivalent shares). This represents 22.8% less than Merchants' dividends
for 1997. It should be noted that the dividend payout ratios of Merchants and
BancorpSouth are very similar. Therefore, the overall dividend impact of the
merger should be positive for the shareholders of Merchants, assuming that
BancorpSouth continues dividend payments at or above current levels.
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EXHIBIT 4
OVERVIEW OF THE EXPECTED IMPACT
ON MERCHANTS SHAREHOLDERS
(CONTINUED)
BOOK VALUE: Reported book value of Merchants was $24.95 per share at December
31, 1997. Reported book value of BancorpSouth at December 31, 1997 was $8.09 per
share. Had the merger been consummated prior to December 31, 1997, each former
Merchants share would have had book value of $30.48 (BancorpSouth book value of
$8.09 per share times 3.768 equivalent shares). This represents an increase of
22.2% over Merchants' book value at December 31, 1997.
Reported book value of Merchants was $26.29 per share at June 30, 1998. Book
value of BancorpSouth at June 30, 1998 was $8.48 per share. Had the merger been
consummated prior to June 30, 1998, each former Merchants share would have had
book value of $31.95 (BancorpSouth book value of $8.48 per share times 3.768
equivalent shares). This represents an increase of 21.5% over Merchants' book
value at June 30, 1998.
The favorable impact on the book value of Merchants shares reflects the fact
that the proposed transaction is about 323% of Merchants' June 30, 1998 book
value, while BancorpSouth common shares were trading at approximately 248% of
book value at June 30, 1998.
LIQUIDITY: Unlike Merchants stock, BancorpSouth shares are traded on the New
York Stock Exchange (NYSE). Further, except in the case of officers, directors,
and certain significant shareholders (Affiliates) of Merchants, BancorpSouth
shares received will be freely tradable with no restrictions. BancorpSouth stock
trades on a regular basis and the average daily volume is over 26,000 shares.
Further, the stock is followed by a number of analysts and has institutional
investors.
FUNDAMENTAL ANALYSIS: Southard Financial reviewed the financial characteristics
of Merchants and BancorpSouth with respect to profitability, capital ratios,
liquidity, asset quality, and other factors. Southard Financial compared
Merchants and BancorpSouth to a universe of publicly traded banks and bank
holding companies and to peer groups prepared by the Federal Financial
Institutions Examination Council (FFIEC). Southard Financial found that the
post-merger combined entity will have capital ratios and profitability ratios
near those of the public peer group and the FFIEC peer group (predominantly
non-publicly traded banks).
Further, the merger will result in the shareholders of Merchants owning stock in
a company with more geographically diverse operations and with a more
diversified loan portfolio. Typically, diversification results in a lower risk
investment. Finally, in our opinion, the growth outlook for BancorpSouth is
significantly better than the growth outlook for Merchants.
C-11
<PAGE> 118
EXHIBIT 5
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
Southard Financial compared the pricing terms of the Agreement to the pricing of
recent acquisitions of banks and bank holding companies across the United
States, and to the minority interest prices of publicly traded banks and bank
holding companies in the Southeast.
Pricing data for recent acquisitions of banks and bank holding companies
(nationwide and in Mississippi and contiguous states) is summarized as follows:
<TABLE>
<CAPTION>
# of Price/ Price/ Price/ Ret on
Transactions Announced in 1997(1) Banks Earnings Book Assets Equity
--------------------------------- ----- -------- ---- ------ ------
<S> <C> <C> <C> <C> <C>
All Transactions........................ 119 23.2x 22.38x 11.70%
Assets $0-$100 Million.................. 48 23.9 2.054 23.17 10.22
Assets $100-$300 Million................ 41 21.8 2.420 22.40 13.12
Assets $300-$500 Million................ 15 20.6 2.181 20.31 13.95
Equity/Assets 6%-8%..................... 28 21.5 2.585 19.15 14.30
Equity/Assets 8%-10%.................... 46 22.5 2.235 19.78 11.60
Equity/Assets 10%-12%................... 25 20.7 2.278 24.63 12.54
ROA 0.00%-0.75%......................... 21 31.3 1.843 16.57 6.41
ROA 0.75%-1.00%......................... 29 27.7 2.263 22.69 9.42
ROA 1.00%-1.50%......................... 55 19.8 2.380 23.33 13.13
Mississippi Banks....................... 1 10.9 1.585 24.10 15.05
Transactions Announced in 1998(2)
---------------------------------
All Transactions........................ 97 25.0x 2.802x 27.59x 12.74%
Merchants3 ............................. 21.0 3.234 28.43 15.40
</TABLE>
1 Through December 31; only includes transactions for Banks with assets
under $1 billion for which sufficient data was available
2 Through June 30; only includes transactions for Banks with assets
under $1 billion for which sufficient data was available
3 Based upon the merger price of $85.02 per share (based on the cash
equivalent price of $22.5625 per share for BancorpSouth), Merchants
shares outstanding of 742,651, Merchants trailing 12-month undiluted
earnings of $4.05 per share (at June 30, 1998), Merchants book value
of $26.29 per share at June 30, 1998, and Merchants assets of $299.00
per share at June 30, 1998.
Based upon the assumptions noted in the table above, the merger of Merchants
into BancorpSouth will take place at 21.0 times Merchants trailing 12-month
earnings through June 30, 1998, 323.4% of Merchants book value at June 30, 1998,
and 28.43% of Merchants assets at June 30, 1998. The price/book value ratio and
price/assets multiple are above the range of recent market multiples, while the
price/earnings multiple is within the recent range.
C-12
<PAGE> 119
EXHIBIT 5
COMPARISON OF THE MERGER PRICING
TO PUBLIC MARKET TRANSACTIONS
(CONTINUED)
In determining the attractiveness of owning BancorpSouth stock, it is important
to examine BancorpSouth's recent pricing in comparison with recent pricing
multiples for publicly traded banks and bank holding companies. This pricing
data is presented below as of June 30, 1998, the most recent quarter-end for the
banking industry.
<TABLE>
<CAPTION>
Price/ Price/ Current Current
Publicly Traded Banks1 Earnings Book Value ROAE Yield
---------------------- -------- ---------- ---- -----
<S> <C> <C> <C> <C>
All Banks (194)........................... 18.48x 234.2% 12.02% 1.72%
Banks Under $100MM Mkt Cap (68)........... 16.93 199.2 10.83 1.34
South Central Banks (33).................. 19.87 239.6 11.69 1.74
Mississippi Banks (3)..................... 20.34 244.1 11.72 1.38
BancorpSouth-6/30/98 Price ($21.0000).....
19.63(2) 247.6(3) 14.15(5) 1.90(6)
BancorpSouth-Merger Price ($22.5625)...... 21.09(2) 266.1(3) 14.15(5) 1.77(6)
</TABLE>
(1) As of June 30, 1998; subject to certain screens performed by Southard
Financial
(2) Based upon trailing 12-month BancorpSouth earnings through June 30,
1998 of $1.07 per share
(3) Based upon June 30, 1998 BancorpSouth book value of $8.48 per share
(4) Based upon estimated 1998 BancorpSouth earnings of $1.20 per share
(5) Based upon estimated 1998 BancorpSouth earnings of $1.20 per share and
June 30, 1998 BancorpSouth book value of $8.48 per share
(6) Based upon estimated 1998 BancorpSouth dividends of $0.40 per share
Based upon an analysis of the data provided above, BancorpSouth's price/earnings
multiple and price/book value multiples are within the range of other publicly
traded banks, while its return on equity and dividend yield are above the range.
C-13
<PAGE> 120
EXHIBIT 6
QUALIFICATIONS OF SOUTHARD FINANCIAL
<TABLE>
<S> <C>
BACKGROUND # Founded in 1987.
# Principals have combined business valuation experience of nearly thirty years.
# Clients served throughout the United States, with concentration in the Southeast.
# Broad industry experience.
# Services provided for public and closely-held companies.
# Annual valuation services provided for over 100 ESOPs, making Southard Financial one of the largest
ESOP appraisers in the United States.
PROFESSIONAL
CREDENTIALS # David A. Harris is a senior member of the American Society of Appraisers (ASA).
# Both principals of Southard Financial are Chartered Financial Analysts (CFA).
# Both principals are former officers of the West Tennessee Chapter of the ASA.
EDUCATIONAL
CREDENTIALS # Douglas K. Southard holds Doctor of Business Administration and Master of Business
Administration degrees from Indiana University, with concentrations in finance, economics, and
quantitative analysis.
# David A. Harris holds the Master of Business Administration degree from Memphis State
University, with a concentration in finance and business investments.
BUSINESS
ETHICS # Southard Financial and its principals adhere to the ethical standards of the Institute of Chartered
Financial Analysts and the American Society of Appraisers.
# All reports conform to the Uniform Standards of Professional Appraisal Practice.
# Southard Financial is committed to providing unbiased opinions to be used for decision making.
# Fees for valuation services are not contingent upon the conclusion of value or the completion of a
transaction.
</TABLE>
C-14
<PAGE> 121
BIOSKETCH
DOUGLAS K. SOUTHARD, DBA, CFA
EDUCATIONAL AND PROFESSIONAL CREDENTIALS
Doctor of Business Administration, 1981, Indiana University
Master of Business Administration, 1976, Indiana University
Bachelor of Arts, 1975, Rhodes College (formerly Southwestern at Memphis)
Chartered Financial Analyst, 1987, Institute of Chartered Financial
Analysts (now part of the Association for Investment Management and
Research)
PROFESSIONAL BACKGROUND
Founder and Principal, Southard Financial, Memphis TN
Partner, Mercer Capital Management, Inc., Memphis TN (1984-87)
Consulting Associate, Mercer Capital Management, Inc., Memphis TN (1983-84)
Principal, Douglas K. Southard, Financial Consultant, Memphis TN (1982-83)
ACADEMIC POSITIONS HELD
Assistant Professor of Finance, Rhodes College, Memphis TN
Assistant Professor of Finance, Virginia Polytechnic Institute & State
University, Blacksburg VA
Lecture in Finance, Indiana University, Bloomington IN
RELATED EXPERIENCE
Frequent Speaker, professional organizations, business valuation topics
Expert Witness, business valuation, local, state and federal courts
Board of Directors, Management Computing Solutions, Inc., Memphis TN
Board of Directors, Columbian Rope Company, Auburn NY
Advisory Board, MicroAge, Memphis TN
Board of Directors, Explorer Systems, Inc., Memphis, TN
Former Officer, West Tennessee Chapter, American Society of Appraisers
PUBLICATIONS
"Using the Capital Asset Pricing Model to Determine Capitalization Rates:
Adjusting for Differences in Financial Structure," with Severin C.
Carlson, Business Valuation Review, June 1991
"Business Valuation Can Serve in Lifetime Planning, " with Z.C. Mercer,
Memphis Business Journal, April 1-5, 1985
"Valuation Process Holds Keys to Executive Wealth," with Z.C. Mercer,
Memphis Business Journal, March 25-29, 1985
"What IRA's Are Worth," with Z.C. Mercer, The Southern Banker, June 1984
C-15
<PAGE> 122
BIOSKETCH
DAVID A. HARRIS, CFA, ASA
EDUCATIONAL AND PROFESSIONAL CREDENTIALS
Master of Business Administration, Memphis State University, 1982
Bachelor of Arts, Colorado State University, 1979
Chartered Financial Analyst, Institute of Chartered Financial Analysts,
1989 (now part of the Association for Investment Management and Research)
Senior Member, American Society of Appraisers, Business Valuation, 1990
PROFESSIONAL BACKGROUND
Principal, Southard Financial, Memphis TN (1990-present)
Associate, Mercer Capital Management, Inc., Memphis TN (1985-90)
Financial Analyst, Methodist Hospitals of Memphis, Inc. (1983-85)
Cost Analyst, Schering-Plough, Inc., Memphis TN (1982-83)
PROFESSIONAL/COMMUNITY SERVICE
Advisory Committee, Special Kids and Families, Inc. (1998)
President, West Tennessee Chapter, American Society of Appraisers (1994-95)
Vice President, West Tennessee Chapter, American Society of Appraisers
(1993-94)
President, West Tennessee Chapter, American Society of Appraisers (1990-91)
Board of Directors, Solomon Schechter Day School of Memphis, Inc. (1993-94)
Vice President, Sea Isle Park Neighborhood Association, Memphis TN
(1992-96)
Board of Directors, Sea Isle Park Neighborhood Association, Memphis TN
(1990-96)
Business Liaison, Junior Achievement of Memphis TN (1984-85)
RELATED EXPERIENCE
Expert Witness, business valuation
Co-Author, "The Perils of Excess," with Z. C. Mercer, ABA Banking Journal,
October 1987
C-16
<PAGE> 123
SOUTHARD
FINANCIAL
SERVICES FOR COMMUNITY BANKS
VALUATION SERVICES
MINORITY STOCK APPRAISALS
# ESOPs
# Dissenting Shareholders
# Insider Transactions
# Gift & Estate Taxes
# Charitable Gifts
# Private Placements/Offerings
# Share Repurchase Plans
# Dividend Reinvestment Plans
# Stock Option Plans
# Other Purposes
CONTROL VALUATIONS
# Pricing Merger/Acquisition Candidates
# Negotiating Pricing/Terms
# Fairness Opinions for Buyers and Sellers
# Evaluation of Offers Received
CONSULTING SERVICES
ECONOMIC & FINANCIAL ANALYSIS
# Branch Feasibility Studies
# Holding Company Formations
# Expert Witness Testimony
STRATEGIC PLANNING
# Long-range Financial Plans
# Evaluation of Financing Alternatives
# Board of Director Seminars
C-17
<PAGE> 124
RECENT BANK MERGERS AND ACQUISITIONS
ADVISORY SERVICES PROVIDED BY
SOUTHARD FINANCIAL
- --------------------------------------------------------------------------------
CBC BANCSHARES, INC.
(Collierville, TN)
has agreed to be acquired by
NATIONAL COMMERCE
BANCORPORATION
(Memphis, TN)
----------------------
the undersigned is acting as financial advisor
to CBC Bancshares, Inc. in the transaction
and issued a fairness opinion on behalf of the
shareholders of CBC Bancshares, Inc.
SOUTHARD FINANCIAL
May 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KITTITAS VALLEY BANCORP, INC.
(Ellensburg, WA)
has agreed to be acquired by
INTERWEST BANCORP, INC.
(Oak Harbor, WA)
----------------------
the undersigned is acting as financial advisor
to Kittitas Valley Bancorp, Inc. in the transaction
and issued a fairness opinion on behalf of the
shareholders of Kittitas Valley Bancorp, Inc.
SOUTHARD FINANCIAL
April 1998
- --------------------------------------------------------------------------------
C-18
<PAGE> 125
- --------------------------------------------------------------------------------
HOLLANDALE CAPITAL CORPORATION
(Hollandale, MS)
has agreed to be acquired by
GUARANTY CAPITAL CORPORATION
(Belzoni, MS)
----------------------
the undersigned is acting as financial advisor
to Hollandale Capital Corporation in the transaction
and issued a fairness opinion on behalf of the
shareholders of Hollandale Capital Corporation.
SOUTHARD FINANCIAL
April 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHIPMAN BANCORP, INC.
(Shipman, IL)
has agreed to be acquired by
CARLINVILLE NATIONAL
BANK SHARES, INC.
(Carlinville, IL)
----------------------
the undersigned is acting as financial advisor
to Shipman Bancorp, Inc. in the transaction
and issuing a fairness opinion on behalf of the
shareholders of Shipman Bancorp, Inc.
SOUTHARD FINANCIAL
Spring 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GRANT NATIONAL BANK
(Ephrata, WA)
has agreed to be acquired by
UNITED SECURITY
BANCORPORATION, INC.
(Spokane, WA)
----------------------
the undersigned is acting as financial advisor
to Grant National Bank in the transaction
and issued a fairness opinion on behalf of the
shareholders of Grant National Bank
SOUTHARD FINANCIAL
April 1998
- --------------------------------------------------------------------------------
C-19
<PAGE> 126
- --------------------------------------------------------------------------------
TOWNE BANCORP, INC.
(Woodinville, WA)
has agreed to be acquired by
FIRST SAVINGS BANK OF
WASHINGTON BANCORP, INC.
(Walla Walla, WA)
----------------------
the undersigned is acting as financial advisor
to Towne Bancorp, Inc. in the transaction
and issued a fairness opinion on behalf of the
shareholders of Towne Bancorp, Inc.
SOUTHARD FINANCIAL
December 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SMITH COUNTY BANK
(Taylorsville, MS)
has agreed to be acquired by
TRUSTMARK CORPORATION
(Jackson, MS)
----------------------
the undersigned is acting as financial advisor
to Smith County Bank in the transaction
and issued a fairness opinion on behalf of the
shareholders of Smith County Bank
SOUTHARD FINANCIAL
October 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RIO GRANDE BANCSHARES, INC.
(Las Cruces, NM)
has agreed to be acquired by
FIRST SECURITY CORPORATION
(Salt Lake City, UT)
----------------------
the undersigned is acting as financial advisor
to Rio Grande Bancshares, Inc. in the
transaction and issued a fairness opinion
on behalf of the shareholders of
Rio Grande Bancshares, Inc.
SOUTHARD FINANCIAL
October 1997
- --------------------------------------------------------------------------------
C-20
<PAGE> 127
- --------------------------------------------------------------------------------
NORTHWEST BANCSHARES OF
LOUISIANA, INC.
(Mansfield, LA)
has agreed to be acquired by
HIBERNIA CORPORATION
(New Orleans, LA)
----------------------
the undersigned is acting as financial advisor
to Northwest Community Bancshares of
Louisiana, Inc. in the transaction and issued a
fairness opinion on behalf of the shareholders
of Northwest Bancshares of Louisiana, Inc.
SOUTHARD FINANCIAL
October 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RECENT BANK MERGERS AND ACQUISITIONS
ADVISORY SERVICES PROVIDED BY
SOUTHARD FINANCIAL
- --------------------------------------------------------------------------------
CITY BANK AND TRUST
(Shreveport, LA)
has agreed to be acquired by
FIRST UNITED BANCSHARES, INC.
(El Dorado, AR)
----------------------
the undersigned is acting as financial advisor
to City Bank and Trust in the
transaction and issued a
fairness opinion on behalf of the
shareholders of City Bank and Trust
SOUTHARD FINANCIAL
October 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE WHEATLAND BANK
(Davenport, WA)
has agreed to be acquired* by
UNITED SECURITY BANCORP
(Spokane, WA)
----------------------
the undersigned is acting as financial advisor
to The Wheatland Bank in the
transaction and was retained to issue a
fairness opinion on behalf of the
shareholders of The Wheatland Bank
SOUTHARD FINANCIAL
August 1997
* Transaction terminated
- --------------------------------------------------------------------------------
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<PAGE> 128
- --------------------------------------------------------------------------------
CITIZENS OF HARDEMAN COUNTY
FINANCIAL SERVICES, INC.
(Whiteville, TN)
has agreed to be acquired by
UNION PLANTERS CORPORATION
(Memphis, TN)
----------------------
the undersigned is acting as financial advisor to
Citizens of Hardeman County Financial Services, Inc.
in the transaction and issued a fairness opinion
on behalf of the shareholders of Citizens of
Hardeman County Financial Services, Inc.
SOUTHARD FINANCIAL
June 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FIRST FEDERAL BANCSHARES, INC.
(Collierville, TN)
merged with
CUMBERLAND BANCORP
(Carthage, TN)
----------------------
the undersigned acted as financial advisor
to First Federal Bancshares, Inc. and
Cumberland Bancorp in the transaction
and issued a fairness opinion on behalf of the
shareholders of both institutions
SOUTHARD FINANCIAL
June 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HERITAGE TEXAS GROUP, INC.
(Pittsburg, TX)
was acquired by
MARTEX BANCSHARES, INC.
(Gladewater, TX)
----------------------
the undersigned acted as financial advisor
to Heritage Texas Group, Inc.
in the transaction and issued a fairness
opinion on behalf of the shareholders of
Heritage Texas Group, Inc.
SOUTHARD FINANCIAL
December 1996
- --------------------------------------------------------------------------------
C-22
<PAGE> 129
- --------------------------------------------------------------------------------
HOME SAVINGS BANK, SSB
(Meridian, MS)
was acquired by
BANCPLUS CORPORATION
(Belzoni, MS)
----------------------
the undersigned acted as financial advisor
to Home Savings Bank, SSB in the transaction
and issued a fairness opinion on behalf of the
shareholders of Home Savings Bank, SSB
SOUTHARD FINANCIAL
March 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
VALLEY FINANCIAL SERVICES, INC.
(South Bend, IN)
was acquired by
FORT WAYNE NATIONAL
CORPORATION
(Fort Wayne, IN)
----------------------
the undersigned acted as financial advisor
to Valley Financial Services, Inc. in the transaction
and issued a fairness opinion on behalf of the
KSOP of Valley Financial Services, Inc.
SOUTHARD FINANCIAL
February 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BUNKIE BANCSHARES, INC.
(Bunkie, LA)
was acquired by
HIBERNIA CORPORATION
(New Orleans, LA)
----------------------
the undersigned acted as financial advisor
to Bunkie Bancshares, Inc. in the transaction
and issued a fairness opinion on behalf of the
shareholders of Bunkie Bancshares, Inc.
SOUTHARD FINANCIAL
January 1996
- --------------------------------------------------------------------------------
C-23
<PAGE> 130
- --------------------------------------------------------------------------------
COLUMBIA RIVER BANKING
COMPANY
(The Dalles, OR)
acquired
KLICKITAT VALLEY BANK
(Klickitat, WA)
----------------------
the undersigned acted as financial advisor
to Columbia River Banking Company
in the transaction
SOUTHARD FINANCIAL
November 1995
- --------------------------------------------------------------------------------
C-24
<PAGE> 131
ANNEX D
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated May 2, 1998, between Merchants
Capital Corporation, a Mississippi corporation ("Issuer"), and BancorpSouth,
Inc., a Mississippi corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Merger of even date herewith (the "Merger Agreement"), which agreement
has been executed by the parties hereto immediately prior to this Stock Option
Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Merger Agreement,
the parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms
hereof, up to 148,150 fully paid and nonassessable shares of Issuer's
Common Stock, $5.00 par value ("Common Stock"), at a price of $63.00
per share (the "Option Price"); provided, however, that in no event
shall the number of shares of Common Stock for which this Option is
exercisable exceed 19.9% of the Issuer's issued and outstanding shares
of Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Common Stock
that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of
this Agreement (other than pursuant to this Agreement) or (ii)
redeemed, repurchased, retired or otherwise cease to be outstanding
after the date of the Agreement, the number of shares of Common Stock
subject to the Option shall be increased or decreased, as appropriate,
so that, after such issuance, such number equals 19.9% of the number of
shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
contained in this Section 1(b) or elsewhere in this Agreement shall be
deemed to authorize Issuer or Grantee to breach any provision of the
Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the
Option, in whole or part, and from time to time, if, but only if, both
an Initial Triggering Event (as hereinafter defined) and a Subsequent
Triggering Event (as hereinafter defined) shall have occurred prior to
the occurrence of an Exercise Termination Event (as hereinafter
defined), provided that the Holder shall have sent the written notice
of such exercise (as provided in subsection (e) of this Section 2)
within 90 days following such Subsequent Triggering Event. Each of the
following shall be an "Exercise Termination Event": (i) the Effective
Time (as defined in the
D-1
<PAGE> 132
Merger Agreement) of the Merger; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 9.1(f) of the Merger
Agreement (unless the breach by Issuer giving rise to such right of
termination is non-volitional) or Section 9.1(g) of the Merger
Agreement; or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of an
Initial Triggering Event or is a termination by Grantee pursuant to
Section 9.1(f) of the Merger Agreement (unless the breach by Issuer
giving rise to such right of termination is non-volitional) or Section
9.1(g) of the Merger Agreement. The term "Holder" shall mean the
Grantee or any future holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each
an "Issuer Subsidiary"), without having received Grantee's
prior written consent, shall have entered into an agreement to
engage in an Acquisition Transaction (as hereinafter defined)
with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of
Issuer shall have recommended that the shareholders of Issuer
approve or accept any Acquisition Transaction. For purposes of
this Agreement, "Acquisition Transaction" shall mean with
respect to any person except Grantee or any Grantee subsidiary
(w) a merger or consolidation, or any similar transaction,
involving Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and
Exchange Commission (the "SEC")) of Issuer, (x) a purchase,
lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more
of the voting power of Issuer, or (z) any substantially
similar transaction;
(ii) Issuer or any Issuer Subsidiary,
without having received Grantee's prior written consent, shall
have authorized, recommended, proposed or publicly announced
its intention to authorize, recommend or propose, to engage in
an Acquisition Transaction with any person other than Grantee
or a Grantee Subsidiary, or the Board of Directors of Issuer
shall have publicly withdrawn or modified, or publicly
announced its intention to withdraw or modify, in any manner
adverse to Grantee, its recommendation that the shareholders
of Issuer approve the transactions contemplated by the Merger
Agreement in anticipation of engaging in an Acquisition
Transaction;
(iii) Any person other than Grantee, any
Grantee Subsidiary or any Issuer Subsidiary acting in a
fiduciary capacity in the ordinary course of its business
shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding
shares of Common Stock (the term "beneficial ownership" for
purposes of this Agreement having the meaning assigned thereto
in Section 13(d) of the 1934 Act, and the rules and
regulations thereunder);
(iv) Any person other than Grantee or any
Grantee Subsidiary shall have made a bona fide proposal to
Issuer or its shareholders by public announcement or written
communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
D-2
<PAGE> 133
(v) After an overture is made by a third
party to Issuer or its shareholders to engage in an
Acquisition Transaction, Issuer shall have breached any
covenant or obligation contained in the Merger Agreement and
such breach (x) would entitle Grantee to terminate the Merger
Agreement and (y) shall not have been cured prior to the
Notice Date (as defined below); or
(vi) Any person other than Grantee or any
Grantee Subsidiary, other than in connection with a
transaction to which Grantee has given its prior written
consent, shall have filed an application or notice with the
Federal Reserve Board, or other federal or state bank
regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an
Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean
either of the following events or transactions occurring after
the date hereof:
(i) The acquisition by any person of
beneficial ownership of 25% or more of the then outstanding
Common Stock; or
(ii) The occurrence of the Initial
Triggering Event described in paragraph (i) of subsection (b)
of this Section 2, except that the percentage referred to in
clause (y) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing
of the occurrence of any Initial Triggering Event or Subsequent
Triggering Event of which it has notice (together, a "Triggering
Event"), it being understood that the giving of such notice by Issuer
shall not be a condition to the right of the Holder to exercise the
Option.
(e) In the event the Holder is entitled to and wishes
to exercise the Option, it shall send to Issuer a written notice (the
date of which being herein referred to as the "Notice Date") specifying
(i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days
nor later than 60 business days from the Notice Date for the closing of
such purchase (the "Closing Date"); provided that if prior notification
to or approval of the Federal Reserve Board or any other regulatory
agency is required in connection with such purchase, the Holder shall
promptly file the required notice or application for approval and shall
expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated
or such approvals have been obtained and any requisite waiting period
or periods shall have passed. Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of
this Section 2, the Holder shall pay to Issuer the aggregate purchase
price for the shares of Common Stock purchased pursuant to the exercise
of the Option in immediately available funds by wire transfer to a bank
account designated by Issuer, provided that failure or refusal of
Issuer to designate such a bank account shall not preclude the Holder
from exercising the Option.
(g) At such closing, simultaneously with the delivery
of immediately available funds as provided in subsection (f) of this
Section 2, Issuer shall deliver to the Holder a certificate or
certificates representing the number of shares of Common Stock
purchased by the Holder and, if the Option should be exercised in part
only, a new Option evidencing the rights of the Holder thereof to
purchase the balance of the shares purchasable hereunder, and the
Holder shall deliver to Issuer this Agreement and a letter agreeing
that
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the Holder will not offer to sell or otherwise dispose of such shares
in violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend that shall
read substantially as follows:
"The transfer of the shares represented by this
certificate is subject to certain provisions of an agreement between
the registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of such
agreement is on file at the principal office of Issuer and will be
provided to the holder hereof without charge upon receipt by Issuer of
a written request therefor."
It is understood and agreed that: (i) the reference
to the resale restrictions of the Securities Act of 1933, as amended
(the "1933 Act"), in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the Holder shall
have delivered to Issuer a copy of a letter from the staff of the SEC,
or an opinion of counsel, in form and substance reasonably satisfactory
to Issuer, to the effect that such legend is not required for purposes
of the 1933 Act; (ii) the reference to the provisions to this Agreement
in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be
required by law.
(i) Upon the giving by the Holder to Issuer of the
written notice of exercise of the Option provided for under subsection
(e) of this Section 2 and the tender of the applicable purchase price
in immediately available funds, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of Issuer shall
then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this
Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. Issuer agrees: (i) that it shall at all times maintain,
free from preemptive rights, sufficient authorized but unissued shares of Common
Stock so that the Option may be exercised without additional authorization of
Common Stock after giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock; (ii) that it will not, by
charter amendment or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act, avoid or seek to avoid the
observance or performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder by Issuer; (iii) promptly to take all action
as may from time to time be required (including (x) complying with all premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
ss.ss. 18a and regulations promulgated thereunder and (y) in the event, under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the Federal Reserve Board or to any state regulatory authority
is necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such information
to the Federal Reserve Board or such state regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
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4. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase, on the same terms and subject to the same conditions as are
set forth herein, in the aggregate the same number of shares of Common Stock
purchasable hereunder. The terms "Agreement" and "Option" as used herein include
any Stock Option Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Merger Agreement, or the
like, the type and number of shares of Common Stock purchasable upon exercise
hereof and the Option Price shall be appropriately adjusted in such manner as
shall fully preserve the economic benefits provided hereunder and proper
provision shall be made in any agreement governing any such transaction to
provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that
occurs prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within 90 days of such Subsequent Triggering Event (whether on
its own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its reasonable best efforts to cause such registration statement
to become effective and remain current in order to permit the sale or other
disposition of this Option and any shares of Common Stock issued upon total or
partial exercise of this Option ("Option Shares") in accordance with any plan of
disposition requested by Grantee. Issuer will use its reasonable best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee shall
have the right to demand two such registrations. The foregoing notwithstanding,
if, at the time of any request by Grantee for registration of the Option or
Option Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to
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be filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in secondary offering underwriting agreements for the
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase
Event (as defined below), (i) following a request of the Holder,
delivered prior to an Exercise Termination Event, Issuer (or any
successor thereto) shall repurchase the Option from the Holder at a
price (the "Option Repurchase Price") equal to the amount by which (A)
the Market/Offer Price (as defined below) exceeds (B) the Option Price,
multiplied by the number of shares for which this Option may then be
exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence
(or such later period as provided in Section 10), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner
shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
(iii) the highest closing price for shares of Common Stock within the
six-month period immediately preceding the date the Holder gives notice
of the required repurchase of this Option or the Owner gives notice of
the required repurchase of Option Shares, as the case may be, or (iv)
in the event of a sale of all or a substantial portion of Issuer's
assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of Issuer as determined by
a nationally recognized investment banking firm selected by the Holder
or the Owner, as the case may be, and reasonably acceptable to the
Issuer, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined
by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to the
Issuer.
(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any
Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, this Agreement or
certificates for Option Shares, as applicable, accompanied by a written
notice or notices stating that the Holder or the Owner, as the case may
be, elects to require Issuer to repurchase this Option and/or the
Option Shares in accordance with the provisions of this Section 7.
Within the latter to occur of (x) five business days after the
surrender of the Option and/or certificates representing Option Shares
and the receipt of such notice or notices relating thereto and (y) the
time that is immediately prior to the occurrence of a Repurchase Event,
Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price
therefor or the portion thereof, if any, that Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under
applicable law or regulation from repurchasing the Option and/or the
Option Shares in full, Issuer shall
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immediately so notify the Holder and/or the Owner and thereafter
deliver or cause to be delivered, from time to time, to the Holder
and/or the Owner, as appropriate, the portion of the Option Repurchase
Price and the Option Share Repurchase Price, respectively, that it is
no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however,
that if Issuer at any time after delivery of a notice of repurchase
pursuant to paragraph (b) of this Section 7 is prohibited under
applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes
to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke
its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to the Holder and/or the Owner,
as appropriate, that portion of the Option Repurchase Price or the
Option Share Repurchase Price that Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Holder,
a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying
the number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice
of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the
Holder and the denominator of which is the Option Repurchase Price, or
(B) to the Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing
(d) For purposes of this Section 7, a Repurchase
Event shall be deemed to have occurred (i) upon the consummation of any
merger, consolidation or similar transaction involving Issuer or any
purchase, lease or other acquisition of all or a substantial portion of
the assets of Issuer, other than any such transaction which would not
constitute an Acquisition Transaction pursuant to the provisos to
Section 2(b)(i) hereof or (ii) upon the acquisition by any person of
beneficial ownership of 50% or more of the then outstanding shares of
Common Stock, provided that no such event shall constitute a Repurchase
Event unless a Subsequent Triggering Event shall have occurred prior to
an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this
Section 7 shall not terminate upon the occurrence of an Exercise
Termination Event unless no Subsequent Triggering Event shall have
occurred prior to the occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination
Event, Issuer shall enter into an agreement (i) to consolidate with or
merge into any person, other than Grantee or one of its Subsidiaries,
and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee
or one of its Subsidiaries, to merge into Issuer and Issuer shall be
the continuing or surviving corporation, but, in connection with such
merger, the then outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other person or
cash or any other property or the then outstanding shares of Common
Stock shall after such merger represent less than 50% of the
outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially
all of its assets to any person, other than Grantee or one of its
Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon
the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an
option (the "Substitute Option"), at the election of the Holder, of
either (x) the Acquiring Corporation (as hereinafter defined) or (y)
any person that controls the Acquiring Corporation.
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(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i)
the continuing or surviving corporation of a consolidation or
merger with Issuer (if other than Issuer), (ii) Issuer in a
merger in which Issuer is the continuing or surviving person,
and (iii) the transferee of all or substantially all of
Issuer's assets.
(2) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Option
upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the
Market/Offer Price, as defined in Section 7.
(4) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for
the one year immediately preceding the consolidation, merger
or sale in question, but in no event higher than the closing
price of the shares of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average
Price shall be computed with respect to a share of common
stock issued by the person merging into Issuer or by any
company which controls or is controlled by such person, as the
Holder may elect.
(c) The Substitute Option shall have the same terms
as the Option, provided, that if the terms of the Substitute Option
cannot, for legal reasons, be the same as the Option, such terms shall
be as similar as possible and in no event less advantageous to the
Holder. The issuer of the Substitute Option shall also enter into an
agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for
such number of shares of Substitute Common Stock as is equal
to the Assigned Value multiplied by the number of shares of
Common Stock for which the Option is then exercisable, divided
by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be
equal to the Option Price multiplied by a fraction, the
numerator of which shall be the number of shares of Common
Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is
exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for
more than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise of the Substitute Option. In the
event that the Substitute Option would be exercisable for more
than 19.9% of the shares of Substitute Common Stock
outstanding prior to exercise but for this clause (e), the
issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (e) over (ii)
the value of the Substitute Option after giving effect to the
limitation in this clause (e). This difference in value shall
be determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be,
and reasonably acceptable to the Acquiring Corporation.
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(f) Issuer shall not enter into any transaction
described in subsection (a) of this Section 8 unless the
Acquiring Corporation and any person that controls the
Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option
(the "Substitute Option Holder"), the Substitute Option Issuer shall
repurchase the Substitute Option from the Substitute Option Holder at a
price (the "Substitute Option Repurchase Price") equal to the amount by
which (i) the Highest Closing Price (as hereinafter defined) exceeds
(ii) the exercise price of the Substitute Option, multiplied by the
number of shares of Substitute Common Stock for which the Substitute
Option may then be exercised and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the
"Substitute Shares"), the Substitute Option Issuer shall repurchase the
Substitute Shares at a price (the "Substitute Share Repurchase Price")
equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall
mean the highest closing price for shares of Substitute Common Stock
within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute
Share Owner, as the case may be, may exercise its respective right to
require the Substitute Option Issuer to repurchase the Substitute
Option and the Substitute Shares pursuant to this Section 9 by
surrendering for such purpose to the Substitute Option Issuer, at its
principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and
certificates for Substitute Shares accompanied by a written notice or
notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute
Option Issuer to repurchase the Substitute Option and/or the Substitute
Shares in accordance with the provisions of this Section 9. As promptly
as practicable, and in any event within five business days after the
surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating
thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute
Share Repurchase Price therefor or, in either case, the portion thereof
which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer
is prohibited under applicable law or regulation from repurchasing the
Substitute Option and/or the Substitute Shares in part or in full, the
Substitute Option Issuer following a request for repurchase pursuant to
this Section 9 shall immediately so notify the Substitute Option Holder
and/or the Substitute Share Owner and thereafter deliver or cause to be
delivered, from time to time, to the Substitute Option Holder and/or
the Substitute Share Owner, as appropriate, the portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, within five business days after the date on
which the Substitute Option Issuer is no longer so prohibited;
provided, however, that if the Substitute Option Issuer is at any time
after delivery of a notice of repurchase pursuant to subsection (b) of
this Section 9 prohibited under applicable law or regulation from
delivering to the Substitute Option Holder and/or the Substitute Share
Owner, as appropriate, the Substitute Option Repurchase Price and the
Substitute Share Repurchase Price, respectively, in full (and the
Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals as promptly as practicable in
order to accomplish such repurchase), the Substitute Option Holder or
Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the
extent of the prohibition, whereupon, in the latter case, the
Substitute Option Issuer shall promptly (i) deliver to the
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Substitute Option Holder or Substitute Share Owner, as appropriate,
that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to purchase that
number of shares of the Substitute Common Stock obtained by multiplying
the number of shares of the Substitute Common Stock for which the
surrendered Substitute Option was exercisable at the time of delivery
of the notice of repurchase by a fraction, the numerator of which is
the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the
denominator of which is the Substitute Option Repurchase Price, or (B)
to the Substitute Share Owner, a certificate for the Substitute Common
Shares it is then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights under
Sections 2, 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
and validly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by Issuer
and is enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action
to authorize and reserve and to permit it to issue, and at all times
from the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the
exercise of the Option, that number of shares of Common Stock equal to
the maximum number of shares of Common Stock at any time and from time
to time issuable hereunder, and all such shares, upon issuance pursuant
hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims,
liens, encumbrance and security interests and not subject to any
preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in
a transaction registered or exempt from registration under the 1933
Act.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement or the Option created hereunder to
any other person, without the express
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written consent of the other party, except that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event,
Grantee, subject to the express provisions hereof, may assign in whole or in
part its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section 10);
provided, however, that until the date 15 days following the date on which the
Federal Reserve Board approves an application by Grantee under the BHCA to
acquire the shares of Common Stock subject to the Option, Grantee may not assign
its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (iii) an assignment
to a single party (e.g., a broker or investment banker) for the purpose of
conducting a widely dispersed public distribution on Grantee's behalf, or (iv)
any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to authorize for quotation the shares of Common Stock issuable hereunder on any
exchange or market on which the shares of Issuer may be listed upon official
notice of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
19. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
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21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
MERCHANTS CAPITAL CORPORATION
BY: /s/ HOWELL N. GAGE
-------------------------------------
Name: Howell N. Gage
Title: Chairman and Chief Executive Officer
BANCORPSOUTH, INC.
BY: /s/ AUBREY B. PATTERSON
-------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
D-12
<PAGE> 143
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Restated Articles of Incorporation and Bylaws.
The Registrant's Restated Articles of Incorporation provide that it
will indemnify, and upon request advance expenses to, any person (or his estate)
who was or is a party to any legal proceeding because he is or was a director,
officer or employee of BancorpSouth, or is or was serving at the request of
BancorpSouth as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, or other entity, against any liability
incurred in that proceeding (A) to the full extent permitted by the MBCA, and
(B) despite the fact that such person did not meet the standard of conduct
specified in the MBCA or would be disqualified for indemnification under the
MBCA, if a determination is made that (i) the person seeking indemnity is fairly
and reasonably entitled to indemnification in view of all of the relevant
circumstances, and (ii) his acts or omissions did not constitute gross
negligence or willful misconduct. A request for reimbursement or advancement of
expenses prior to final disposition of the proceeding must be accompanied by an
undertaking to repay the advances if it is ultimately determined that he did not
meet the requisite standard of conduct but it need not be accompanied by an
affirmation that the person seeking indemnity believed he has met the standard
of conduct.
The Registrant's Bylaws provide that it will indemnify officers and
directors who are a party to any legal proceeding because he is or was an
officer or director of BancorpSouth against any expenses or awards in connection
therewith if he acted in good faith and in a manner he reasonably believed to be
in the best interest of BancorpSouth and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. The
Registrant also will indemnify officers and directors who are a party to any
derivative suit with respect to the Registrant because that person is or was an
officer or director of the Registrant, against expenses incurred in connection
with that action unless he is found to have acted without good faith and without
that degree of care, diligence and skill which ordinarily prudent men would
exercise in similar circumstances and in like positions, unless, despite such
finding of liability, the court determines that he is entitled to indemnity. The
Bylaws also provide that the Registrant may (i) advance to the officer or
director the expenses incurred in defending a proceeding upon receipt of an
undertaking that he will repay amounts advanced unless it ultimately is
determined that he is entitled to be indemnified, and (ii) purchase and maintain
insurance on behalf of an officer or director against any liability arising out
of his acting as such.
B. Mississippi Business Corporation Act.
In addition to the foregoing provisions of the Registrant's Restated
Articles of Incorporation and Bylaws, directors, officers, employees and agents
of the Registrant and its subsidiaries may be indemnified by the Registrant
pursuant to Sections 79-4-8.50 through 79-4-8.58 of the MBCA.
C. Insurance.
The Registrant maintains and pays premiums on an insurance policy on
behalf of its officers and directors against liability asserted against or
incurred by such persons in or arising from their capacity as such.
D. Commission Policy On Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the
II-1
<PAGE> 144
Registrant has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of May 2, 1998, between the Registrant
and Merchants Capital Corporation (1)
3.1 -- Restated Articles of Incorporation of the Registrant (2)
3.2 -- Amendment to Articles of Incorporation of Registrant, as filed on May 4, 1994 (2)
3.3 -- Bylaws of the Registrant, as amended(3)
5.1 -- Opinion of Waller Lansden Dortch & Davis, A Professional Limited Liability
Company
8.1 -- Opinion of Waller Lansden Dortch & Davis, A Professional Limited Liability
Company, as to tax matters
10.1 -- Stock Option Agreement, dated as of May 2, 1998, between the Registrant and
Merchants Capital Corporation
11.1 -- Statement re computation of earnings per share (4)
13.1 -- Merchants Capital Corporation 1997 Annual Report to Shareholders
21.1 -- List of subsidiaries of the Registrant (4)
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of May & Co.
23.3 -- Consent of Waller Lansden Dortch & Davis, A Professional Limited Liability
Company (included in opinions filed as Exhibits 5.1 and 8.1)
23.4 -- Consent of Southard Financial
24.1 -- Power of Attorney (included on page II-5)
</TABLE>
-------------------
(1) Incorporated by reference to exhibits filed with the Registrant's
Current Report on Form 8-K filed on May 18, 1998.
(2) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form S-4 filed on January 5, 1995.
(3) Incorporated by reference to exhibits filed with the Registrant's
Registration Statement on Form 8-A filed on May 14, 1997.
(4) Incorporated by reference to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
II-2
<PAGE> 145
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE> 146
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-4
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Tupelo, State of Mississippi, on August 26, 1998.
BANCORPSOUTH, INC.
By: /s/ Aubrey B. Patterson
------------------------------------
Aubrey B. Patterson
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Aubrey B. Patterson and L. Nash Allen,
Jr., and each of them, his true and lawful attorney-in-fact, as agent and with
full power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacity, to sign any or all amendments to this
Post-Effective Amendment to the Registration Statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents in full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully and
to all intents and purposes as they might or be in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Aubrey B. Patterson Chairman of the Board, Chief August 26, 1998
- ---------------------------------- Executive Officer, Director (principal
Aubrey B. Patterson executive officer)
/s/ L. Nash Allen, Jr. Treasurer and Chief Financial August 26, 1998
- ---------------------------------- Officer (principal financial and
L. Nash Allen, Jr. accounting officer)
/s/ Shed H. Davis Director August 26, 1998
- ----------------------------------
Shed H. Davis
/s/ Hassell H. Franklin Director August 26, 1998
- ----------------------------------
Hassell H. Franklin
/s/ Fletcher H. Goode, M.D. Director August 26, 1998
- ----------------------------------
Fletcher H. Goode, M.D.
/s/ W. G. Holliman, Jr. Director August 26, 1998
- ----------------------------------
W. G. Holliman, Jr.
</TABLE>
II-5
<PAGE> 148
<TABLE>
<S> <C> <C>
/s/ A. Douglas Jumper Director August 26, 1998
- ----------------------------------
A. Douglas Jumper
/s/ Turner O. Lashlee Director August 26, 1998
- ----------------------------------
Turner O. Lashlee
/s/ Alan W. Perry Director August 26, 1998
- ----------------------------------
Alan W. Perry
/s/ Travis E. Staub Director August 26, 1998
- ----------------------------------
Travis E. Staub
/s/ Dr. Andrew R. Townes Director August 26, 1998
- ----------------------------------
Dr. Andrew R. Townes
/s/ Lowery A. Woodall Director August 26, 1998
- ----------------------------------
Lowery A. Woodall
</TABLE>
II-6
<PAGE> 1
Exhibit 5.1
WALLER LANSDEN DORTCH & DAVIS
A PROFESSIONAL LIMITED LIABILITY COMPANY
NASHVILLE CITY CENTER
511 UNION STREET, SUITE 2100
POST OFFICE BOX 198966
NASHVILLE, TENNESSEE 37219-8966
FACSIMILES (615) 244-6380 809 SOUTH MAIN STREET
(615) 244-6804 P. O. BOX 1035
(615) 244-5686 COLUMBIA, TN 38402-1035
(615) 388-6031
September 14, 1998
Board of Directors
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
Ladies and Gentlemen:
We are acting as counsel to BancorpSouth, Inc., a Mississippi
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of 2,798,309 shares of common
stock (the Shares"), $2.50 par value per share, of the Company, pursuant to the
above-captioned Registration Statement and Post-Effective Amendment No. 2
thereto (the "Registration Statement"). As such counsel and in connection with
the foregoing, we have examined and relied upon such records, documents and
other instruments as in our judgment are necessary or appropriate in order to
express the opinions hereinafter set forth, and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
Based upon and subject to the foregoing and such other matters as we
have deemed relevant, we are of the opinion that the Shares, when issued and
delivered upon payment therefor in the manner and on the terms described in or
incorporated by reference into the Registration Statement (after the same is
effective), will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the reference to us under the
caption "Legal Matters" in the prospectus included in the Registration
Statement.
Very truly yours,
/s/ WALLER LANSDEN DORTCH & DAVIS, PLLC
<PAGE> 1
Exhibit 8.1
WALLER LANSDEN DORTCH & DAVIS
A PROFESSIONAL LIMITED LIABILITY COMPANY
NASHVILLE CITY CENTER
511 UNION STREET, SUITE 2100
POST OFFICE BOX 198966
NASHVILLE, TENNESSEE 37219-8966
FACSIMILES (615) 244-6380 809 SOUTH MAIN STREET
(615) 244-6804 P. O. BOX 1035
(615) 244-5686 COLUMBIA, TN 38402-1035
(615) 388-6031
September 14, 1998
BancorpSouth, Inc.
One Mississippi Plaza
Tupelo, Mississippi 38801
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER OF
MERCHANTS CAPITAL CORPORATION WITH AND INTO BANCORPSOUTH, INC.
Ladies and Gentlemen:
We have acted as tax counsel to BancorpSouth, Inc., a
Mississippi corporation ("BancorpSouth"), in connection with the proposed merger
(the "Merger") of Merchants Capital Corporation, a Mississippi corporation (the
"Company"), with and into BancorpSouth, pursuant to the terms of the Agreement
and Plan of Merger dated as of May 2, 1998 (the "Merger Agreement"), by and
among BancorpSouth and the Company. At your request, as an exhibit to the
Registration Statement on Form S-4 to be filed with the Securities and Exchange
Commission in connection with the Merger (the "Registration Statement"), we are
hereby rendering our opinion regarding certain federal income tax consequences
of the Merger.
INFORMATION RELIED UPON
In rendering the opinion set forth herein and with your
consent, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of the Merger Agreement, the Proxy
Statement/Prospectus included in the Registration Statement related to the
Merger (together, the "Proxy Statement") and the representations (which we have
neither investigated nor verified) given to us by letter, dated September 14,
1998, by BancorpSouth and by letter, dated September 14, 1998, by the Company,
each as contained and described in the representations section of such letters
(collectively, the "Certificates"), and have assumed that such Certificates will
be complete and accurate on the date given and as of the Effective Time. In
addition, we have examined such other documents, agreements, and certificates
and made such investigations of law and fact as we have deemed necessary or
appropriate as a basis for the opinion set forth below.
In our examination, we have assumed, with your consent, the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photocopies,
the authenticity of the originals of such copies, and any material unexecuted
documents will be properly executed in the form as currently presented to us. As
to any facts material to this opinion which we did not independently establish
or verify, we have relied upon the accuracy and completeness of (i) the
statements and representations made by the BancorpSouth and the Company and (ii)
the Proxy Statement, and we have assumed that such will be complete and accurate
through the date hereof and will continue to remain complete and accurate as of
the Effective Time. In addition, we have assumed, with your consent, that the
statements contained in the Certificates are complete and accurate on the date
hereof and will be complete and accurate as of the Effective Time, and that any
representation made in any of the documents referred to herein "to the best of
the knowledge and belief" (or similar qualification) of any person or party is
now and will be as of the Effective Time complete and accurate without such
qualification. We have also assumed that the transaction contemplated by the
Merger Agreement will be consummated in accordance therewith
<PAGE> 2
BancorpSouth, Inc.
September 14, 1998
Page 2
and as described in the Proxy Statement and that the Merger will qualify as a
statutory merger under the applicable laws of the State of Mississippi.
Unless specified, capitalized terms used herein shall have the meanings
assigned to them in the Merger Agreement. All references herein to the Code are
to the Internal Revenue Code of 1986, as amended (the "Code").
OPINION
On the basis of the foregoing, and subject to the assumptions,
qualifications and limitations stated herein, we are of the opinion that:
(i) The Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code;
(ii) No gain or loss will be recognized by BancorpSouth or the
Company as a result of the Merger;
(iii) No gain or loss will be recognized by the shareholders
of the Company who exchange all of their Company Common Stock solely
for BancorpSouth Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in
BancorpSouth Common Stock); and
(iv) The aggregate tax basis of the BancorpSouth Common Stock
received by the shareholders of the Company who exchange all of their
Company Common Stock solely for BancorpSouth Common Stock pursuant to
the Merger will be the same as the aggregate tax basis of the Company
Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
The opinion expressed herein is based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinion is based solely on the documents
that we have examined, the additional information that we have obtained, and the
facts set out in the Certificates that we have assumed, with your consent, to be
true and correct. Our opinion cannot be relied upon if any of the facts
contained in such documents or in any such additional information is, or later
becomes, inaccurate, or if any of the facts set out in the Certificates is, or
later becomes, inaccurate.
Our opinion is limited to the United States federal income tax
matters specifically covered thereby, and we have not been asked to address, nor
have we addressed, any other tax consequences that may result from the Merger or
any other transaction (including any transaction undertaken in connection with
the Merger). We express no opinion regarding the tax consequences of the Merger
to shareholders of the Company that are subject to special tax rules.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration Statement,
and to the references to our firm under the
<PAGE> 3
BancorpSouth, Inc.
September 14, 1998
Page 3
heading "The Merger -- Certain Federal Income Tax Consequences" and elsewhere in
the Proxy Statement. In giving such consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ WALLER LANSDEN DORTCH & DAVIS, PLLC
<PAGE> 1
EXHIBIT 10.1
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated May 2, 1998, between Merchants
Capital Corporation, a Mississippi corporation ("Issuer"), and BancorpSouth,
Inc., a Mississippi corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger
Agreement and in consideration therefor, Issuer has agreed to grant Grantee the
Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreement, the
parties hereto agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to
148,150 fully paid and nonassessable shares of Issuer's Common Stock, $5.00
par value ("Common Stock"), at a price of $63.00 per share (the "Option
Price"); provided, however, that in no event shall the number of shares of
Common Stock for which this Option is exercisable exceed 19.9% of the
Issuer's issued and outstanding shares of Common Stock without giving
effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set
forth.
(b) In the event that any additional shares of Common Stock are either
(i) issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of the
Agreement, the number of shares of Common Stock subject to the Option shall
be increased or decreased, as appropriate, so that, after such issuance,
such number equals 19.9% of the number of shares of Common Stock then
issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option. Nothing contained in this Section 1(b) or
elsewhere in this Agreement shall be deemed to authorize Issuer or Grantee
to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event
(as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), provided that the
Holder shall have sent the written notice of such exercise (as provided in
subsection (e) of this Section 2) within 90 days following such Subsequent
Triggering Event. Each of the following shall be an "Exercise Termination
Event": (i) the Effective Time (as defined in the
<PAGE> 2
Merger Agreement) of the Merger; (ii) termination of the Merger Agreement
in accordance with the provisions thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event except a termination by
Grantee pursuant to Section 9.1(f) of the Merger Agreement (unless the
breach by Issuer giving rise to such right of termination is
non-volitional) or Section 9.1(g) of the Merger Agreement; or (iii) the
passage of 12 months after termination of the Merger Agreement if such
termination follows the occurrence of an Initial Triggering Event or is a
termination by Grantee pursuant to Section 9.1(f) of the Merger Agreement
(unless the breach by Issuer giving rise to such right of termination is
non-volitional) or Section 9.1(g) of the Merger Agreement. The term
"Holder" shall mean the Grantee or any future holder or holders of the
Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the rules and
regulations thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or the Board of Directors of Issuer
shall have recommended that the shareholders of Issuer approve or
accept any Acquisition Transaction. For purposes of this Agreement,
"Acquisition Transaction" shall mean with respect to any person except
Grantee or any Grantee subsidiary (w) a merger or consolidation, or
any similar transaction, involving Issuer or any Significant
Subsidiary (as defined in Rule 1-02 of Regulation S-X promulgated by
the Securities and Exchange Commission (the "SEC")) of Issuer, (x) a
purchase, lease or other acquisition or assumption of all or a
substantial portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power
of Issuer, or (z) any substantially similar transaction;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend
or propose, to engage in an Acquisition Transaction with any person
other than Grantee or a Grantee Subsidiary, or the Board of Directors
of Issuer shall have publicly withdrawn or modified, or publicly
announced its intention to withdraw or modify, in any manner adverse
to Grantee, its recommendation that the shareholders of Issuer approve
the transactions contemplated by the Merger Agreement in anticipation
of engaging in an Acquisition Transaction;
(iii) Any person other than Grantee, any Grantee Subsidiary or
any Issuer Subsidiary acting in a fiduciary capacity in the ordinary
course of its business shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 10% or more of the
outstanding shares of Common Stock (the term "beneficial ownership"
for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations
thereunder);
(iv) Any person other than Grantee or any Grantee Subsidiary
shall have made a bona fide proposal to Issuer or its shareholders by
public announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition Transaction;
2
<PAGE> 3
(v) After an overture is made by a third party to Issuer or its
shareholders to engage in an Acquisition Transaction, Issuer shall
have breached any covenant or obligation contained in the Merger
Agreement and such breach (x) would entitle Grantee to terminate the
Merger Agreement and (y) shall not have been cured prior to the Notice
Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee has given
its prior written consent, shall have filed an application or notice
with the Federal Reserve Board, or other federal or state bank
regulatory authority, which application or notice has been accepted
for processing, for approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 25%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except that the
percentage referred to in clause (y) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event of which it
has notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of
the Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
provided that if prior notification to or approval of the Federal Reserve
Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of
time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite
waiting period or periods shall have passed. Any exercise of the Option
shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated
by Issuer, provided that failure or refusal of Issuer to designate such a
bank account shall not preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder,
and the Holder shall deliver to Issuer this Agreement and a letter agreeing
that
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<PAGE> 4
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder may
be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under the Securities Act of
1933, as amended. A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder hereof without charge
upon receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in
the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy
of a letter from the staff of the SEC, or an opinion of counsel, in form
and substance reasonably satisfactory to Issuer, to the effect that such
legend is not required for purposes of the 1933 Act; (ii) the reference to
the provisions to this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required
by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its
assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common Stock so
that the Option may be exercised without additional authorization of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights to purchase Common Stock; (ii) that it will not, by charter
amendment or through reorganization, consolidation, merger, dissolution or sale
of assets, or by any other voluntary act, avoid or seek to avoid the observance
or performance of any of the covenants, stipulations or conditions to be
observed or performed hereunder by Issuer; (iii) promptly to take all action as
may from time to time be required (including (x) complying with all premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
ss.ss. 18a and regulations promulgated thereunder and (y) in the event, under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), or the Change in
Bank Control Act of 1978, as amended, or any state banking law, prior approval
of or notice to the Federal Reserve Board or to any state regulatory authority
is necessary before the Option may be exercised, cooperating fully with the
Holder in preparing such applications or notices and providing such information
to the Federal Reserve Board or such state regulatory authority as they may
require) in order to permit the Holder to exercise the Option and Issuer duly
and effectively to issue shares of Common Stock pursuant hereto; and (iv)
promptly to take all action provided herein to protect the rights of the Holder
against dilution.
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4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares, distributions on or in respect of the Common Stock that
would be prohibited under the terms of the Merger Agreement, or the like, the
type and number of shares of Common Stock purchasable upon exercise hereof and
the Option Price shall be appropriately adjusted in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such proper
adjustment and the full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within 90 days of such Subsequent Triggering Event (whether on its own
behalf or on behalf of any subsequent holder of this Option (or part thereof) or
any of the shares of Common Stock issued pursuant hereto), promptly prepare,
file and keep current a shelf registration statement under the 1933 Act covering
this Option and any shares issued and issuable pursuant to this Option and shall
use its reasonable best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. The foregoing notwithstanding, if, at
the time of any request by Grantee for registration of the Option or Option
Shares as provided above, Issuer is in registration with respect to an
underwritten public offering of shares of Common Stock, and if in the good faith
judgment of the managing underwriter or managing underwriters, or, if none, the
sole underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance as promptly as practicable and no reduction shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to
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<PAGE> 6
be filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in secondary offering underwriting agreements for the
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall Issuer be obligated to effect more than two registrations
pursuant to this Section 6 by reason of the fact that there shall be more than
one Grantee as a result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to
an Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase
Price") equal to the amount by which (A) the Market/Offer Price (as defined
below) exceeds (B) the Option Price, multiplied by the number of shares for
which this Option may then be exercised and (ii) at the request of the
owner of Option Shares from time to time (the "Owner"), delivered within 90
days of such occurrence (or such later period as provided in Section 10),
Issuer shall repurchase such number of the Option Shares from the Owner as
the Owner shall designate at a price (the "Option Share Repurchase Price")
equal to the Market/Offer Price multiplied by the number of Option Shares
so designated. The term "Market/Offer Price" shall mean the highest of (i)
the price per share of Common Stock at which a tender offer or exchange
offer therefor has been made, (ii) the price per share of Common Stock to
be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price for shares of Common Stock within the six-month
period immediately preceding the date the Holder gives notice of the
required repurchase of this Option or the Owner gives notice of the
required repurchase of Option Shares, as the case may be, or (iv) in the
event of a sale of all or a substantial portion of Issuer's assets, the sum
of the price paid in such sale for such assets and the current market value
of the remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case
may be, and reasonably acceptable to the Issuer, divided by the number of
shares of Common Stock of Issuer outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than
cash shall be determined by a nationally recognized investment banking firm
selected by the Holder or Owner, as the case may be, and reasonably
acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the
Holder or the Owner, as the case may be, elects to require Issuer to
repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. Within the latter to occur of (x) five
business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices
relating thereto and (y) the time that is immediately prior to the
occurrence of a Repurchase Event, Issuer shall deliver or cause to be
delivered to the Holder the Option Repurchase Price and/or to the Owner the
Option Share Repurchase Price therefor or the portion thereof, if any, that
Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall
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<PAGE> 7
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner,
as appropriate, the portion of the Option Repurchase Price and the Option
Share Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to paragraph (b) of this
Section 7 is prohibited under applicable law or regulation from delivering
to the Holder and/or the Owner, as appropriate, the Option Repurchase Price
and the Option Share Repurchase Price, respectively, in full (and Issuer
hereby undertakes to use its best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder or Owner
may revoke its notice of repurchase of the Option or the Option Shares
either in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder and/or the
Owner, as appropriate, that portion of the Option Repurchase Price or the
Option Share Repurchase Price that Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Holder, a
new Stock Option Agreement evidencing the right of the Holder to purchase
that number of shares of Common Stock obtained by multiplying the number of
shares of Common Stock for which the surrendered Stock Option Agreement was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of
which is the Option Repurchase Price, or (B) to the Owner, a certificate
for the Option Shares it is then so prohibited from repurchasing
(d) For purposes of this Section 7, a Repurchase Event shall be
deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase,
lease or other acquisition of all or a substantial portion of the assets of
Issuer, other than any such transaction which would not constitute an
Acquisition Transaction pursuant to the provisos to Section 2(b)(i) hereof
or (ii) upon the acquisition by any person of beneficial ownership of 50%
or more of the then outstanding shares of Common Stock, provided that no
such event shall constitute a Repurchase Event unless a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination
Event. The parties hereto agree that Issuer's obligations to repurchase the
Option or Option Shares under this Section 7 shall not terminate upon the
occurrence of an Exercise Termination Event unless no Subsequent Triggering
Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into
any person, other than Grantee or one of its Subsidiaries, and shall not be
the continuing or surviving corporation of such consolidation or merger,
(ii) to permit any person, other than Grantee or one of its Subsidiaries,
to merge into Issuer and Issuer shall be the continuing or surviving
corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or
other securities of any other person or cash or any other property or the
then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding voting shares and voting share equivalents
of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or one of
its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provision so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set
forth herein, be converted into, or exchanged for, an option (the
"Substitute Option"), at the election of the Holder, of either (x) the
Acquiring Corporation (as hereinafter defined) or (y) any person that
controls the Acquiring Corporation.
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<PAGE> 8
(b) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the Substitute
Option.
(3) "Assigned Value" shall mean the Market/Offer Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute Common
Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common
stock issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option,
provided, that if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to the Holder. The issuer of the Substitute Option shall
also enter into an agreement with the then Holder or Holders of the Substitute
Option in substantially the same form as this Agreement, which shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the
Option is then exercisable, divided by the Average Price. The exercise
price of the Substitute Option per share of Substitute Common Stock
shall then be equal to the Option Price multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock for
which the Option is then exercisable and the denominator of which
shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the shares of Substitute Common
Stock outstanding prior to exercise but for this clause (e), the
issuer of the Substitute Option (the "Substitute Option Issuer") shall
make a cash payment to Holder equal to the excess of (i) the value of
the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving
effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and
reasonably acceptable to the Acquiring Corporation.
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<PAGE> 9
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation
and any person that controls the Acquiring Corporation assume in
writing all the obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise
price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be
exercised and at the request of the owner (the "Substitute Share Owner") of
shares of Substitute Common Stock (the "Substitute Shares"), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding
the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the
Substitute Shares pursuant to this Section 9 by surrendering for such
purpose to the Substitute Option Issuer, at its principal office, the
agreement for such Substitute Option (or, in the absence of such an
agreement, a copy of this Agreement) and certificates for Substitute Shares
accompanied by a written notice or notices stating that the Substitute
Option Holder or the Substitute Share Owner, as the case may be, elects to
require the Substitute Option Issuer to repurchase the Substitute Option
and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable, and in any event within five
business days after the surrender of the Substitute Option and/or
certificates representing Substitute Shares and the receipt of such notice
or notices relating thereto, the Substitute Option Issuer shall deliver or
cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute
Share Owner and thereafter deliver or cause to be delivered, from time to
time, to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five
business days after the date on which the Substitute Option Issuer is no
longer so prohibited; provided, however, that if the Substitute Option
Issuer is at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 9 prohibited under applicable law or
regulation from delivering to the Substitute Option Holder and/or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and
the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals as promptly as practicable in order
to accomplish such repurchase), the Substitute Option Holder or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or
the Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly
(i) deliver to the
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<PAGE> 10
Substitute Option Holder or Substitute Share Owner, as appropriate, that
portion of the Substitute Option Repurchase Price or the Substitute Share
Repurchase Price that the Substitute Option Issuer is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to the Substitute
Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing.
10. The 90-day period for exercise of certain rights under
Sections 2, 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as
follows:
(a) Issuer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been
duly and validly authorized by the Board of Directors of Issuer and no
other corporate proceedings on the part of Issuer are necessary to
authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by Issuer and is enforceable against Issuer in accordance
with its terms.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from
the date hereof through the termination of this Agreement in
accordance with its terms will have reserved for issuance upon the
exercise of the Option, that number of shares of Common Stock equal to
the maximum number of shares of Common Stock at any time and from time
to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims,
liens, encumbrance and security interests and not subject to any
preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and
authority to enter into this Agreement and, subject to any approvals or
consents referred to herein, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Grantee.
This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common
Stock or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution
thereof and will not be transferred or otherwise disposed of except in
a transaction registered or exempt from registration under the 1933
Act.
13. Neither of the parties hereto may assign any of its rights
or obligations under this Option Agreement or the Option created hereunder to
any other person, without the express
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<PAGE> 11
written consent of the other party, except that in the event a Subsequent
Triggering Event shall have occurred prior to an Exercise Termination Event,
Grantee, subject to the express provisions hereof, may assign in whole or in
part its rights and obligations hereunder within 90 days following such
Subsequent Triggering Event (or such later period as provided in Section 10);
provided, however, that until the date 15 days following the date on which the
Federal Reserve Board approves an application by Grantee under the BHCA to
acquire the shares of Common Stock subject to the Option, Grantee may not assign
its rights under the Option except in (i) a widely dispersed public
distribution, (ii) a private placement in which no one party acquires the right
to purchase in excess of 2% of the voting shares of Issuer, (iii) an assignment
to a single party (e.g., a broker or investment banker) for the purpose of
conducting a widely dispersed public distribution on Grantee's behalf, or (iv)
any other manner approved by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation making application
to authorize for quotation the shares of Common Stock issuable hereunder on any
exchange or market on which the shares of Issuer may be listed upon official
notice of issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
15. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained
in this Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 5
hereof), it is the express intention of Issuer to allow the Holder to acquire or
to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
17. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in
accordance with the laws of the State of Mississippi, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
19. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
20. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
11
<PAGE> 12
21. Except as otherwise expressly provided herein or in the
Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and permitted assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
22. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Merger Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
MERCHANTS CAPITAL CORPORATION
BY: /s/ HOWELL N. GAGE
---------------------------------------
Name: Howell N. Gage
Title: Chairman and Chief Executive Officer
BANCORPSOUTH, INC.
BY: /s/ AUBREY B. PATTERSON
---------------------------------------
Name: Aubrey B. Patterson
Title: Chairman and Chief Executive Officer
13
<PAGE> 1
EXHIBIT 13.1
MERCHANTS CAPITAL CORPORATION
1997 ANNUAL REPORT TO SHAREHOLDERS
<PAGE> 2
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH
INDEPENDENT AUDITOR'S REPORTS
<PAGE> 3
Fellow Shareholders:
We are pleased to once again report a very successful year for your
Company. Earnings of $3,002,595 highlighted 1997's results, exceeding $3,000,000
for the first time. These results bettered 1996's earnings by 14% and are more
than double 1994's figures. Other noteworthy statistics for the year include:
- Deposits grew during 1997 by 8% to over $193,000,000.
- Loans grew to $136,000,000, up 4% over 1996 levels.
- Total assets grew 8% to a year-end total of over $224,000,000.
While still healthy, our local economy experienced only marginal growth
in 1997, as we expected it might. This slowing in activity impacted the growth
we were able to achieve in our business. While the extent of our deposit growth
was gratifying, loan growth was more limited and the competition for available
loans was intense. As a consequence, growth in net interest income was a
respectable, but modest, 5%. Fee-based revenues likewise grew at about 5% for
the year. We anticipated the more modest pace of growth in 1997 and spent a
great deal of time honing the efficiency of our operations. As a result, we held
our non-interest expenses essentially flat in 1997. This expense control allowed
us to convert revenue growth of 5% into very satisfactory earnings growth of
14%.
The $3,002,595 earnings of 1997 translate to a return on shareholder
equity of about 17%. In an effort to continue passing our strong earnings along
to shareholders and to avoid accumulating excess capital in the Company, our
Board of Directors took the following actions:
- Increased our regular quarterly dividend to 30(cent) per share,
effective last April 1st.
- Paid a 5% stock dividend this past May 1st.
- Paid a special year-end dividend of 75(cent) per share this
past January 2nd.
We are proud that our Company can continue to succeed in the face of
competition from much larger rivals. We believe this success comes as a result
of dedicated employees providing loyal
<PAGE> 4
customers with the very best personal service. We hope to use that formula
successfully again in 1998. As always, we would be most pleased to serve your
banking needs and to hear from you about any matter. Please call on us.
Yours sincerely,
[photo] [photo]
Howell N. Gage Joel H. Horton
Chairman President
2
<PAGE> 5
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Financial Statement - Years Ended December 31, 1997 and 1996
Independent Auditor's Report
To the Board of Directors and Stockholders
Merchants Capital Corporation
We have audited the accompanying consolidated statements of financial
condition of Merchants Capital Corporation and Subsidiary as of December 31,
1997 and 1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Merchants Capital Corporation and Subsidiary as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ May & Company
Vicksburg, Mississippi
January 20, 1998
3
<PAGE> 6
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks ............................ $ 9,988,522 $ 10,218,925
Interest bearing deposits with banks ............... 96,209 86,731
Federal funds sold ................................. 3,473,703 16,080,078
Investment securities:
Available-for-sale (amortized cost of 68,008,306 and
$42,836,946, respectively) ....................... 68,151,857 42,913,870
Loans ................................................ 139,426,173 134,098,875
Less:
Unearned income ................................. (1,595,823) (1,689,189)
Allowance for loan losses ....................... (1,592,012) (1,545,820)
------------- -------------
Net loans ....................................... 136,238,338 130,863,866
------------- -------------
Bank premises and equipment, net ..................... 2,698,060 2,752,777
Other real estate .................................... 181,280 128,849
Accrued interest receivable .......................... 1,997,240 1,760,153
Premium on purchased deposits and assets, less
amortization of $257,667 in 1997 and $208,533
in 1996............................................ 452,333 501,467
Deferred income taxes ................................ 313,473 303,300
Other assets ......................................... 407,681 452,834
------------- -------------
TOTAL ASSETS ......................................... $ 223,998,696 $ 206,062,850
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 7
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition -- Continued
December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
LIABILITIES:
Deposits:
Non-interest bearing ...................................... $ 25,378,217 $ 22,434,563
Interest bearing .......................................... 165,757,406 154,834,160
------------ ------------
191,135,623 177,268,723
Security participations ..................................... 11,921,483 9,811,858
Accrued interest payable .................................... 903,348 822,785
Accrued taxes and other liabilities ......................... 639,198 606,770
Dividends declared but not paid ............................. 779,784 548,325
------------ ------------
Total liabilities ................................... 205,379,436 189,058,461
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $5 par value per share; 1,000,000 shares
authorized; 742,651 and 707,516 shares issued and
outstanding in 1997 and 1996, respectively ................ 3,713,255 3,537,580
Additional paid-in capital .................................. 13,877,419 12,823,369
Retained earnings ........................................... 941,020 596,516
Net unrealized gains on securities available-for-sale, net of
taxes of $55,985 in 1997 and $30,000 in 1996 .............. 87,566 46,924
------------ ------------
Total stockholders' equity .......................... 18,619,260 17,004,389
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $223,998,696 $206,062,850
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 8
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans ...................... $ 12,685,422 $ 12,336,854
Interest and dividends on investment securities:
Taxable interest income ....................... 3,290,929 2,655,429
Exempt from federal income taxes .............. 238,846 231,723
Dividends ..................................... 57,966 53,768
Interest on federal funds sold .................. 398,065 406,894
------------ ------------
Total interest income ...................... 16,671,228 15,684,668
------------ ------------
INTEREST EXPENSE:
Interest on deposits ............................ 6,755,254 6,530,964
Interest on federal funds purchased and security
participations ................................ 647,782 373,008
------------ ------------
Total interest expense ..................... 7,403,036 6,903,972
------------ ------------
NET INTEREST INCOME ............................... 9,268,192 8,780,696
PROVISION FOR LOAN LOSSES ......................... 420,000 320,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 8,848,192 8,460,696
------------ ------------
OTHER INCOME:
Service charges on deposits ................... 1,135,307 1,073,643
Fees for other customer services .............. 837,894 849,977
Commission and fees from fiduciary activities . 495,105 416,724
Net investment securities gains (losses) ...... 18,639 (49,917)
Other ......................................... 413,928 385,957
------------ ------------
Total other income ......................... 2,900,873 2,676,384
------------ ------------
</TABLE>
Continued......
6
<PAGE> 9
<TABLE>
<S> <C> <C>
OTHER EXPENSES:
Salaries ..................................... 2,928,599 2,899,685
Employee benefits ............................ 880,363 885,205
Net occupancy expense ........................ 514,040 550,867
Equipment expense ............................ 567,437 560,858
Other ........................................ 2,345,045 2,238,195
---------- ----------
Total other expenses ...................... 7,235,484 7,134,810
---------- ----------
INCOME BEFORE INCOME TAX EXPENSE ............... 4,513,581 4,002,270
INCOME TAX EXPENSE ............................. 1,510,986 1,375,997
---------- ----------
NET INCOME ..................................... $3,002,595 $2,626,273
========== ==========
BASIC EARNINGS PER SHARE ....................... $ 4.04 $ 3.54
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC .... 742,651 742,651
========== ==========
DILUTED EARNINGS PER SHARE ..................... $ 4.04 $ 3.54
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING -
DILUTED ...................................... 742,651 742,651
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 10
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Additional Available-for-
Common Paid In Retained sale,
Total Stock Capital Earnings Net of Taxes
----- ----- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 ......... $ 15,437,215 $ 3,370,270 $ 11,852,971 $ 222,107 $ (8,133)
Net income for the year ... 2,626,273 -- -- 2,626,273 --
Cash dividends declared
($1.49 per share) ....... (1,105,972) -- -- (1,105,972) --
Stock dividend - 5% (33,462
shares) ................. -- 167,310 970,398 (1,137,708) --
Payment for fractional
shares .................. (8,184) -- -- (8,184) --
Net change in unrealized
gains on securities
available-for-sale, net
of taxes of $35,200 ..... 55,057 -- -- -- 55,057
------------ ------------ ------------ ------------ -----------
BALANCE,
December 31, 1996 ......... 17,004,389 3,537,580 12,823,369 596,516 46,924
Net income for the year ... 3,002,595 -- -- 3,002,595 --
Cash dividends declared
($1.91 per share) ....... (1,419,941) -- -- (1,419,941) --
Stock dividend - 5% (35,135
shares) ................. -- 175,675 1,054,050 (1,229,725) --
Payment for fractional
shares .................. (8,425) -- -- (8,425) --
Net change in unrealized
gains on securities
available-for-sale, net
of taxes of $25,985 ..... 40,642 -- -- -- 40,642
------------ ------------ ------------ ------------ ----------
BALANCE,
December 31, 1997 ......... $ 18,619,260 $ 3,713,255 $ 13,877,419 $ 941,020 $ 87,566
============ ============ ============ ============ ==========
</TABLE>
- -----------------------
See accompanying notes to the consolidated financial statements.
8
<PAGE> 11
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 3,002,595 $ 2,626,273
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses ............................ 420,000 320,000
Provision for depreciation and amortization .......... 415,773 417,742
Amortization of premium on purchased deposits and
assets ............................................. 49,134 49,133
Accretion on investment securities, net .............. (647,303) (200,204)
Deferred income taxes benefit ........................ (36,158) (10,680)
Write-down of other real estate ...................... 23,020 9,220
Gain on sale of other real estate .................... (55,106) (29,984)
Loss on sale of bank premises and equipment .......... 1,071 5,760
Net investment securities (gain) loss ................ (18,639) 49,917
(Increase) decrease in:
Accrued interest receivable .......................... (237,087) 206,402
Other assets ......................................... 45,153 (83,714)
Increase (decrease) in:
Accrued interest payable ............................. 80,563 (8,154)
Accrued taxes and other liabilities .................. 32,428 1,084
------------ ------------
Net cash provided by operating activities ................. 3,075,444 3,352,795
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in interest bearing deposits with
banks ................................................ (9,478) 24,799
Proceeds from maturity of time deposit ................... -- 692,126
Net (increase) decrease in federal funds sold ............ 12,606,375 (13,280,078)
Purchase of available-for-sale securities ................ (89,675,308) (35,561,120)
Proceeds from calls and maturities of available-for-sale
securities ........................................... 58,321,710 35,461,724
Net increase in loans .................................... (6,054,498) (5,259,733)
Purchases of premises and equipment ...................... (362,127) (640,949)
</TABLE>
Continued......
9
<PAGE> 12
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows - Continued
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES - Continued:
Proceeds from sales of premises and equipment ............ -- 80,000
Proceeds from sales of other real estate ................. 239,681 153,964
Interest received on time deposit ........................ -- (24,458)
------------ ------------
Net cash ;used in investing activities ............ (18,085,465) (8,383,413)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest and interest bearing demand
accounts .............................................. 7,938,829 3,118,315
Net increase in time deposits ............................ 5,928,071 2,441,301
Payment of fractional shares from stock dividend ......... (8,425) (8,184)
Cash dividends paid ...................................... (1,188,482) (1,063,187)
Increase in security participations ...................... 2,109,625 3,198,303
------------ ------------
Net cash provided by financing activities ......... 14,779,618 7,686,548
------------ ------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS .................................................... (230,403) 2,655,930
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR ............... 10,218,925 7,562,995
------------ ------------
CASH AND DUE FROM BANKS AT END OF YEAR ..................... $ 9,988,522 $ 10,218,925
============ ============
SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Dividends declared but not paid ..................... $ 779,784 $ 548,325
============ ============
Transfer of loans foreclosed to other real estate ... $ 260,026 $ 123,050
============ ============
Stock dividends declared ............................ $ 1,229,725 $ 1,137,708
============ ============
Total increase in unrealized gains on securities
available-for-sale ............................... $ 66,627 $ 90,257
============ ============
Deferred income taxes on recorded unrealized gains on
securities available-for-sale .................... $ (25,985) $ (35,200)
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
10
<PAGE> 13
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes To Consolidated Financial Statements
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by Merchants Capital
Corporation (the Company) and its wholly-owned subsidiary, Merchants
Bank and its wholly-owned subsidiaries, Merchants Credit Company and
Merchants Insurance Agency, Inc., are those which are generally
practiced within the banking industry. The methods of applying those
principles conform with generally accepted accounting principles and
have been applied on a consistent basis. The principles which
significantly affect the determination of financial position, results
of operations, changes in stockholders' equity, and cash flows are
summarized below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Merchants Capital Corporation (the Company) and its wholly-owned
subsidiary, Merchants Bank and its wholly-owned subsidiaries, Merchants
Credit Company and Merchants Insurance Agency, Inc. All material
intercompany profits, balances and transactions have been eliminated.
NATURE OF OPERATIONS
The Bank operates under a state bank charter and provides full
banking services, including trust services. The area served by the Bank
is the west central region of Mississippi and services are provided at
five branch offices.
USE OF ESTIMATES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT SECURITIES
Securities are being accounted for in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Investments in Debt and Equity Securities," which requires the
classification of securities as held to maturity, trading, or available
for sale.
Continued......
11
<PAGE> 14
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INVESTMENT SECURITIES - Continued
Management determines the appropriate classification of
securities at the time of purchase. If management has the positive
intent and the Bank has the ability at the time of purchase to hold
bonds, notes and debentures until maturity, they are classified as
held-to-maturity and carried at cost, adjusted for amortization of
premiums and accretion of discounts using methods approximating the
interest method over the contractual lives.
Available-for-sale securities include securities that
management intends to use as part of its asset and liability management
strategy and that may be sold in response to changes in interest rates,
resultant prepayment risk and other factors related to interest rate
and resultant prepayment risk changes. These securities are carried at
fair value. Other equity securities include stock in the Federal
Reserve Bank and the Federal Home Loan Bank, which are restricted and
are carried at cost.
Realized gains and losses on dispositions are based on the net
proceeds and the adjusted book value of the securities sold, using the
specific identification method. Realized gains and losses flow through
the Bank's yearly operations. Unrealized gains and losses on investment
securities available-for-sale are based on the difference between book
value and fair value of each security. These gains and losses are
credited or charged to stockholders' equity, net of related deferred
tax effect. The Bank does not engage in trading account activities.
LOANS
Loans are stated at the amount of principal outstanding,
reduced by unearned income and an allowance for loan losses and net
deferred loan fees, if applicable. Loan origination fees and certain
direct origination costs are capitalized and recognized as an
adjustment of the yield of the related loan. Interest income on
installment loans is recognized and included in interest income over
the terms of the loans by a method which approximates the interest
method. Interest on other loans is calculated by using the simple
interest method on daily balances of the principal amount outstanding.
Continued......
12
<PAGE> 15
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
LOANS - Continued
The Bank generally discontinues the accrual of interest income
when a loan becomes 90 days past due as to principal or interest;
however, management may elect to continue the accrual when the
estimated net realizable value of collateral is sufficient to cover the
principal balance and the accrued interest. Interest on impaired loans
is discontinued when, in management's opinion, the borrower may be
unable to meet payments as they become due. Any unpaid interest
previously accrued on nonaccrual loans is reversed from income or
charged to the allowance for loan losses. Interest income, generally,
is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are
applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest
payments received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is an amount which in
management's judgment believes is adequate to absorb potential losses
on existing loans. The allowance for loan losses is based upon
management's review and evaluation of the loan portfolio. Factors
considered in the establishment of the allowance for loan losses
include management's evaluation of specific loans, the level and
composition of classified loans, historical loss experience, results of
examinations by regulatory agencies, an internal asset review process,
expectations of future economic conditions and their impact on
particular borrowers, and other judgmental factors. Allowances for
impaired loans are generally determined based on collateral values or
the present value of estimated cash flows.
The allowance for loan losses is based on estimates of
potential future losses, and ultimate losses may vary from the current
estimates. These estimates are reviewed periodically and as adjustment
become necessary, the effect of the change in estimate is charged to
operating expenses in the period incurred. All losses are charged to
the allowance for loan losses when the loss actually occurs or when
management believes that the collectability of the principal is
unlikely. Recoveries are credited to the allowance at the time of
recovery.
Continued......
13
<PAGE> 16
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is charged to
expense over the estimated useful lives of the assets. Leasehold
improvements are amortized over the terms of the respective leases or
the estimated useful lives of the improvements, whichever is shorter.
Depreciation and amortization expense are computed by the straight-line
method for financial reporting purposes and accelerated methods for
income tax purposes.
OTHER REAL ESTATE
Other real estate, consisting primarily of foreclosed
property, is stated at the unpaid loan balance or estimated market
value of property acquired less estimated selling costs, whichever is
lower. Any resultant write-down at the time of foreclosure is charged
to the allowance for loan losses. Subsequent write-downs associated
with the assets fair value declining below their carrying value are
reflected in earnings in the year the decline is noted. The fair value
of significant foreclosed properties is determined based upon appraised
value, utilizing either the estimated replacement cost, the selling
price of properties utilized for similar purposes or discounted cash
flow analyses of the properties' operations. Revenue and expense
associated with owning and operating other real estate, and gains and
losses on disposition of such assets are recorded in earnings in the
period incurred.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year (after exclusion of nontaxable income such as
interest on state and municipal securities) and deferred taxes on
temporary differences between the amount of taxable and pretax
financial income and between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which
the deferred tax assets and liabilities are expected to be realized or
settled as prescribed in FASB Statement No. 109, Accounting for Income
Taxes. As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.
Continued......
14
<PAGE> 17
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
INCOME TAXES - Continued
The Company and its wholly-owned subsidiary file a
consolidated federal income tax return. Consolidated income tax expense
is allocated on the basis of each company's income adjusted for
permanent differences.
PREMIUM ON PURCHASED DEPOSITS AND ASSETS
The portion of the premium on purchased deposits and assets
applicable to core deposits ($710,000) is being amortized by the
straight-line method over approximately fifteen years.
INCOME PER SHARE
Earnings per common share are calculated on the basis of the
weighted average number of shares outstanding after giving retroactive
effect to the stock dividend distributed. Options to purchase 1,000
shares of common stock at $35 per share were outstanding during the
last three quarters of 1997, but were not included in the computation
of diluted EPS because the options' exercise price was equal to the
average market price of the common shares. The options, which expire on
March 2007, were still outstanding at the end of year 1997. All shares
held by the Employee Stock Ownership Plan (ESOP) are treated as
outstanding in computing income per share.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to
extend credit and standby letters of credit. Such financial instruments
are recorded in the financial statements when they become payable.
CASH FLOWS
For purposes of the consolidated statements of cash flows, the
Company considers only cash and due from banks (including cash items in
process of clearing) to be cash equivalents.
Continued......
15
<PAGE> 18
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CASH FLOWS - Continued
The Company paid income taxes approximating $1,521,000 in 1997
and $1,450,000 in 1996. Interest paid on deposit liabilities and other
borrowings approximated $7,328,000 in 1997 and $6,912,000 in 1996.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform
with the 1997 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 establishes
new standards for reporting comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. This statement is effective for
fiscal years beginning after December 15, 1997. The Company does not
expect the adoption of SFAS No. 130 to have a material effect on its
financial statements.
Continued......
16
<PAGE> 19
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 And 1996
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
In June 1997, the Financial Accounting Standards Board also
issued SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information. SFAS No. 131 establishes new standards for the
way public business enterprises report information about operating
segments in financial statements. This statement is effective for
fiscal years beginning after December 15, 1997. The Company does not
expect the adoption of SFAS No. 131 to have a material effect on its
financial statements.
NOTE B. CASH AND DUE FROM BANKS
The Bank is required to maintain average cash reserve
balances. This requirement approximates $1,428,000 at December 31,
1997, and $1,200,000 at December 31, 1996. The Bank is in compliance
with this requirement.
NOTE C. INVESTMENT SECURITIES
The amortized costs and fair values of investment securities
available-for-sale at December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies ............. $ 58,484,725 $ 109,908 $ (43,773) $ 58,550,860
Mortgage-backed securities ........ 4,192,279 38,930 (24,122) 4,207,087
Obligations of states and political
subdivisions .................... 4,356,402 62,677 (69) 4,419,010
Other equity securities ........... 974,900 -- -- 974,900
------------ ------------ ------------ ------------
$ 68,008,306 $ 211,515 $ (67,964) $ 68,151,857
============ ============ ============ ============
</TABLE>
Continued......
17
<PAGE> 20
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE C. INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---- ----- ------ ----------
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies ............ $ 27,960,431 $ 49,434 $ (53,076) $ 27,956,789
Mortgage-backed securities ........ 10,368,222 61,436 (59,081) 10,370,578
Obligations of states and political
subdivisions ................... 3,584,093 79,934 (1,723) 3,662,303
Other equity securities ........... 924,200 -- -- 924,200
------------ ------------ ------------ ------------
$ 42,836,946 $ 190,804 $ (113,880) $ 42,913,870
============ ============ ============ ============
</TABLE>
Gross realized gains of $19,756 and gross realized losses of
$1,117 resulted from sale of available-for-sale securities in 1997.
There were $-0- realized gains or losses on held-to-maturity
securities during 1997. Gross realized gains of $-0- and gross
realized losses of $49,917 were realized on available-for-sale
security dispositions in 1996. There were no realized gains or losses
on held-to-maturity securities in 1996.
Investment securities with an amortized cost of approximately
$45,487,061 (fair value $45,581,718) at December 31, 1997, and
$32,946,000 (fair value $32,975,000) at December 31, 1996, were pledged
to collateralize public deposits, and for other purposes as required by
law or agreement.
The amortized cost and fair values of investment securities
available-for-sale at December 31, 1997, by contractual maturity are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities are included in the table based on
contractual maturity.
Continued......
18
<PAGE> 21
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE C. INVESTMENT SECURITIES - CONTINUED
<TABLE>
<CAPTION>
Securities available-for-sale
------------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less ........................ $35,235,772 $35,230,808
Due after one year but less than five years .... 31,014,127 31,124,055
Due after five years but less than ten years ... 1,140,407 1,178,994
Other securities ............................... 618,000 618,000
----------- -----------
$68,008,306 $68,151,857
=========== ===========
</TABLE>
NOTE D. LOANS
The loan portfolio at December 31, 1997 and 1996, consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Agriculture ............................ $ 1,042,613 $ 1,510,437
Commercial and industrial .............. 104,371,061 103,117,837
Real estate - construction ............. 4,746,600 5,742,457
Real estate - mortgage ................. 7,735,935 8,567,614
Installment ............................ 21,529,964 15,160,530
------------ ------------
Total loans ............................ $139,426,173 $134,098,875
============ ============
</TABLE>
Loans on which accrual of interest has been discontinued or reduced
amounted to approximately $264,000 and $1,100,000 at December 31, 1997 and
1996, respectively. If interest on these loans had been accrued, such
income would have been approximately $59,000 and $88,000 in 1997 and 1996,
respectively.
Continued......
19
<PAGE> 22
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE D. LOANS - CONTINUED
Impaired loans having recorded investments of $544,000
(majority of which is on a nonaccrual basis) and $1,394,000 at December
31, 1997 and 1996, respectively, have been recognized in conformity
with FASB Statement No. 114 as amended by FASB Statement No. 118. As a
result of direct write-downs, the specific allowance related to these
impaired loans is immaterial. The average recorded investment in
impaired loans during 1997 and 1996 was $894,000 and $1,243,000,
respectively. The amount of interest income recognized on impaired
loans for both 1997 and 1996 was immaterial. There have been no new
commitments to extend additional credit to these borrowers.
In the ordinary course of business, the Bank makes loans to
its executive officers, directors and to their affiliates. Loans made
to such borrowers (including companies in which they are principal
owners) amounted to approximately $4,721,000 and $5,487,000 at December
31, 1997 and 1996, respectively. These loans were made on substantially
the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons
and did not involve more than normal risk of collectability or present
other unfavorable features.
Changes in these loans are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at January 1...................... $5,486,973 $6,395,939
New loans............................. 2,660,843 2,052,141
Repayments............................ (3,426,659) (2,961,107)
----------- -----------
Balance at December 31.................... $ 4,721,156 $ 5,486,973
=========== ===========
</TABLE>
Continued......
20
<PAGE> 23
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE E. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at January 1...................... $1,545,820 $1,466,840
---------- ----------
Credits charged off..................... (638,544) (538,647)
Recoveries.............................. 264,736 297,627
---------- ----------
Net (credits charged off) recoveries...... (373,808) (241,020)
Provision for loan losses............... 420,000 320,000
---------- ----------
Balance at December 31.................... $1,592,012 $1,545,820
========== ==========
</TABLE>
Continued.....
21
<PAGE> 24
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE F. PREMISES AND EQUIPMENT
A summary of Bank premises and equipment is as follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1996
---- ----
<S> <C> <C>
Land................................... $ 531,013 $ 531,013
Buildings.............................. 2,244,552 2,224,136
Furniture and equipment................ 3,649,366 3,416,713
Leasehold improvements................. 131,558 151,521
---------- ----------
6,556,489 6,323,383
Less accumulated depreciation and
amortization........................ 3,858,429 3,570,606
---------- ----------
Bank premises and equipment, net....... $2,698,060 $2,752,777
========== ==========
</TABLE>
NOTE G. TRUST DEPARTMENT ASSETS
Property (other than cash deposits) held by the Bank in
fiduciary or agency capacities for its customers is not included in the
accompanying consolidated statements of financial condition as such
items are not assets of the Bank. Trust fees are reported on the cash
basis. The difference between cash basis and the accrual basis is
immaterial.
Continued.....
22
<PAGE> 25
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE H. DEPOSITS
Deposits at December 31, 1997 and 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Non-interest bearing demand deposits......... $ 25,378,217 $ 22,434,563
NOW accounts................................. 30,490,580 28,276,738
Money market deposit accounts................ 7,110,070 8,263,876
Savings accounts............................. 57,707,520 53,772,381
Certificates of deposit...................... 70,449,236 64,521,165
------------ ------------
$191,135,623 $177,268,723
============ ============
</TABLE>
Maturities of time certificates of deposit of $100,000 or more
outstanding at December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Time remaining until maturity:
Three months or less.................... $12,626,258 $ 1,306,659
Over three through six months........... 4,573,689 2,173,368
Over six through twelve months.......... 1,446,468 2,599,663
Over twelve months...................... 2,387,143 7,253,394
----------- -----------
$21,033,558 $13,333,084
=========== ===========
</TABLE>
At December 31, 1997, the scheduled maturities of time
certificates of deposit are as follows:
<TABLE>
<S> <C>
1998........................ $52,015,144
1999........................ 12,079,534
2000........................ 4,396,794
2001........................ 741,557
2002........................ 1,095,131
Thereafter.................. 121,076
-----------
$70,449,236
===========
</TABLE>
Continued.....
23
<PAGE> 26
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE I. STOCKHOLDERS' EQUITY AND REGULATORY MATTERS
In 1997 and 1996, the Board of Directors approved a 5% stock
dividend, respectively, which resulted in the transfer of the market
value of the stock from retained earnings to common stock and surplus.
The primary sources of revenue of Merchants Capital
Corporation are dividends from its subsidiary, Merchants Bank.
Dividends paid by Merchants Bank to the Capital Corporation amounted to
$1,974,356, $1,231,762, and $1,022,540 for the years 1997, 1996 and
1995. Banking regulations limit the amount of dividends that may be
paid without prior approval of the Bank's regulatory agency.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory---and possibly
additional discretionary---actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices.
The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulation) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the
regulators categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the table.
There are no conditions or events since that notification that
management believes have changed the institution's category.
Continued......
24
<PAGE> 27
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE I. STOCKHOLDERS' EQUITY AND REGULATORY MATTERS - CONTINUED
The Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------- ----------------------- ---------------------------
Amount Ratio Amount Ratio Amount
------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31,
1997
Total Capital (To
Risk-Weighted
Assets) 10.0%............ $18,368,164 12.64% $11,626,000 > or = 8.0% $14,532,501 > or = 10.0%
Tier I Capital (to
Risk-Weighted
Assets (5.0%)............ $16,776,156 11.54% $ 5,813,000 > or = 4.0% $ 8,719,500 > or = 6.0%
Tier I Capital (to
Average Assets) 5.0%..... $16,776,156 7.45% $ 9,005,385 > or = 4.0% $11,256,732 > or = 5.0%
AS OF DECEMBER 31,
1996
Total Capital (to
Risk-Weighted
Assets) 10.0%............. $17,234,000 12.31% $11,204,400 > or = 8.0% $14,005,500 > or = 10.0%
Tier I Capital (to
Risk-Weighted
Assets) 6.0%.............. $15,688,000 11.20% $ 5,602,200 > or = 4.0% $ 8,403,300 > or = 6.0%
Tier I Capital (to
Average Assets) 5.0%..... $15,688,000 7.70% $ 8,154,760 > or = 4.0% $10,193,450 > or = 5.0%
</TABLE>
NOTE J. EMPLOYEE BENEFIT PLANS
Employees of the Bank participate in a profit sharing and
savings retirement plan and an ESOP covering all employees who qualify
as to length of service. The Bank also has a contributory 401(k)
savings plan covering substantially all employees. The 401(k) plan
allows eligible employees to contribute up to a fixed percentage of
their compensation, with the Bank matching a portion of each employee's
contribution. The Bank's contributions to the plans are made at the
discretion of the Board of Directors. Dividends on ESOP shares are
recorded as a reduction in retained earnings. The ESOP plan held 51,724
shares at December 31, 1997, and 45,156 at December 31, 1996.
Contributions to all employee benefit plans totaled $103,000 in 1997
and $102,797 in 1996.
Continued......
25
<PAGE> 28
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE J. EMPLOYEE BENEFIT PLANS - CONTINUED
In addition to providing pension benefits, the Bank covers
retirees under their group health care plan. The arrangement is that
the Bank will pay a percentage of the retirees' health insurance
premiums. Also, the Bank pays a supplemental retirement benefit to
retired individuals who have received 100% of their pension retirement
from other Bank qualified plans. Under the present arrangement, these
post-retirement benefits will only be available to those individuals
who have met the retirement eligibility requirements of the Bank and
who retired prior to 1995. Prior to 1993, the Bank's practice was
generally to expense the cost of these benefits as they were paid.
Therefore, the result was an unfunded benefit plan.
Beginning in 1993, Statement on Financial Accounting Standard
(SFAS) No. 106, Employers' Accounting for Post-retirement Benefits
Other Than Pensions required that costs of retiree benefits other than
pensions be recognized in the financial statements during the
employees' working career. SFAS No. 106 required that the unrecorded
accumulated post-retirement benefit obligation be either charged in the
income statement as a cumulative effect of a change in accounting
principle in the period of adoption or delayed and amortized over
future periods as part of future post-retirement benefit costs. The
Bank has elected the delayed recognition. The unrecorded
post-retirement benefit obligation will be amortized using the straight
line method over the average remaining life expectancy period of the
plan participants since all or almost all of the plan participants are
inactive.
The following tables set forth the plan's combined funds
status reconciled with the amount shown in the Bank's statement of
financial condition.
Continued.....
26
<PAGE> 29
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE J. EMPLOYEE BENEFIT PLANS - CONTINUED
Accumulated post-retirement benefit obligation:
<TABLE>
<CAPTION>
December 31
1997 1996
--------- ---------
<S> <C> <C>
Retirees .................................. $ 260,383 $ 263,470
Plan assets at fair value ................. -- --
--------- ---------
Accumulated post-retirement benefit
obligation in excess of plan assets
260,383 263,470
Unrecognized transition obligation ........ (132,535) (148,809)
--------- ---------
Accrued post-retirement benefit cost on the
balance sheet ......................... $ 127,848 $ 114,661
========= =========
</TABLE>
The Bank's post-retirement health care plan is underfunded.
Post-retirement expense includes the following components:
<TABLE>
<CAPTION>
Years Ended
December 31
1997 1996
------- -------
<S> <C> <C>
Interest cost on accumulated
post-retirement benefit obligation ... $18,443 $19,547
------- -------
Amortization of transition obligation over
14 years ............................. 14,881 30,672
------- -------
Post-retirement expense .................. $33,324 $50,219
======= =======
</TABLE>
The accumulated post-retirement benefit obligation was
determined using an assumed discount rate of 6.00%. The assumed health
care cost trend rate used in measuring the accumulated post-retirement
benefit obligation was 4.5% in 1997, declining ratably to an ultimate
flat rate. The health care cost trend rate assumption has a significant
effect on the amounts reported. Increasing the assumed health care cost
trend rates by one percentage point in each year would increase the
accumulated post-retirement benefit obligation as of December 31, 1997,
by approximately $7,000. The effect of this change on the aggregate
interest cost for 1997 would be immaterial. The supplemental retirement
benefits are assumed at a constant rate.
Continued.....
27
<PAGE> 30
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE K. STOCK OPTIONS
On March 25, 1997, the Board of Directors adopted a stock
incentive plan for certain officers and key employees of the Company.
The stock incentive plan was approved by the Company's shareholders at
its annual meeting held on April 15, 1997. Options may be granted under
the provisions of the Company's plans to purchase common stock of the
Company at a price not less than the fair market value on the date of
grant. Stock options for officers and key employees are exercisable
upon the fifth anniversary from the date of grant. All options expire
10 years from the date of grant. As of December 31, 1997, options
granted were 1,000. There were approximately 24,000 shares available
for option plan grants at December 31, 1997. The summary of stock
option activity is shown below:
<TABLE>
<CAPTION>
Average
Options Exercise
Outstanding Price
----------- ---------
<S> <C> <C>
DECEMBER 31, 1996 ......... -- $ --
Options granted ....... 1,000 35.00
Stock options exercised -- --
Stock options canceled -- --
----- ---------
DECEMBER 31, 1997 ......... 1,000 $ 35.00
===== =========
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Average Remaining
Exercise Price Outstanding Contractual Life
-------------- ----------- ----------------
<S> <C> <C> <C>
35.00 1,000 10 Years
</TABLE>
Continued......
28
<PAGE> 31
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE K. STOCK OPTIONS - CONTINUED
During fiscal 1997, the Company adopted SFAS No. 123,
Accounting for Stock-Based Compensation, which requires companies to
estimate the fair value for stock options on date of grant. Under SFAS
No. 123, the Company is required to record the estimated fair value of
stock options issued as compensation expense in its income statements
over the related service periods or, alternatively, continue to apply
accounting methodologies as prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
disclose the pro forma effects of the estimated fair value of stock
options issued in the accompanying footnotes to its financial
statements. The determination of fair value is only required for stock
options issued beginning in 1996. In adopting SFAS No. 123, the Company
decided to continued to follow the accounting methodologies as
prescribed by APB Opinion No. 25.
The pro forma effects of the total compensation expense that
would have been recognized under SFAS No. 123 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) December 31, 1997
--------------------------------------------- -----------------
<S> <C>
Net income, as reported............................... $ 3,002.00
Pro forma net income.................................. 3,002.00
Earnings per share, as reported....................... 4.04
Pro forma earnings per share.......................... 4.04
</TABLE>
In adopting SFAS No. 123, the Company utilized the Black
Scholes Option Pricing Model to estimate the fair value of stock
options granted using the following assumptions:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Expected dividend yield............................... 4.63%
Expected option lives................................. 7.5 yrs
Expected volatility................................... 2.5%
Risk-free interest rates.............................. 5.5%
</TABLE>
29
<PAGE> 32
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE K. STOCK OPTIONS - CONTINUED
Based on the results of the model, the fair value of the stock
options issued on the date of grant are as follows:
<TABLE>
<CAPTION>
Number Average Grant Date
Years Issued Fair Value per Option
----- ------ ---------------------
<S> <C> <C>
1997 1,000 $ 1.7239
</TABLE>
NOTE L. OTHER EXPENSES
Other expenses for the years ended December 31, 1997 and 1996,
include the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
FDIC assessment........................................... $ 17,796 $203,621
General operating supplies................................ $220,305 $212,682
Telephone................................................. $153,410 $183,522
Outside data processing................................... $225,135 $207,600
Miscellaneous outside service fees........................ $348,561 $149,038
</TABLE>
NOTE M. INCOME TAX PROVISION
The provision for income taxes included in the consolidated
statements of income is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current................................................... $ 1,547,144 $ 1,386,677
Deferred.................................................. (36,158) (10,680)
----------- -----------
$ 1,510,986 $ 1,375,997
=========== ===========
</TABLE>
Income taxes refundable of $36,922 in 1997 is included in
other assets. Income taxes payable of $60,414 in 1996 is included in
accrued taxes and other liabilities.
30
<PAGE> 33
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE M. INCOME TAX PROVISION - CONTINUED
Deferred tax assets and liabilities at December 31, 1997 and
1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................................ $ 307,378 $ 289,364
Deferred compensation.................................... 48,254 43,600
Post-retirement liability................................ 49,861 44,718
Core deposit intangible.................................. 3,819 5,307
Other real estate........................................ 3,705 8,236
Accelerated depreciation and amortization 2,174 --
----------- -----------
Total gross deferred tax asset................................ 415,191 391,225
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Accretion of discounts on securities...................... (79,884) (53,966)
Unrealized securities gains............................... (21,834) (30,000)
Accelerated depreciation and amortization................. -- (3,959)
----------- -----------
Total gross deferred tax liability............................ (101,718) (87,925)
----------- -----------
Net deferred tax asset........................................ $ 313,473 $ 303,300
=========== ===========
</TABLE>
The provision for federal income taxes in comparison to that
computed by applying the statutory rate of 39% in 1997 and 39% in 1996,
is indicated in the following analysis:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Tax based on statutory rate................................... $ 1,760,297 $ 1,560,885
Effect of tax-exempt income................................... (194,478) (139,429)
Accretion..................................................... (35,825) (19,184)
State income tax.............................................. (26,576) (34,709)
Other......................................................... 7,568 8,434
----------- -----------
$ 1,510,986 $ 1,375,997
=========== ===========
</TABLE>
31
<PAGE> 34
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE M. INCOME TAX PROVISION - CONTINUED
The Company has evaluated the need for a valuation allowance
and, based on the weight of the available evidence, has determined that
it is more likely than not that all deferred tax assets will eventually
be realized. The income tax provision includes approximately $7,270 and
$(19,500) in 1997 and 1996, respectively, resulting from securities
transactions.
NOTE N. OFF-BALANCE-SHEET INSTRUMENTS
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit. These
instruments involve, to varying degrees, elements of credit risk in
excess of the amounts recognized in the consolidated statements of
financial condition.
The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Bank
uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition established
in the contract. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The amount and type of collateral obtained, if deemed
necessary by the Bank upon extension of credit, varies and is based on
management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third
party. Standby letters of credit generally have fixed expiration dates
or other termination clauses and may require payment of a fee. The
credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers. The
Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making
commitments to extend credit.
32
<PAGE> 35
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE N. OFF-BALANCE-SHEET INSTRUMENTS - CONTINUED
The Bank's maximum exposure to credit loss is represented by
the contractual amount of the commitments to extend credit and letters
of credit as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Commitments to extend credit................................. $22,362,476 $ 24,396,757
Standby letters of credit.................................... $ 1,683,150 $ 2,139,573
</TABLE>
NOTE O. CONCENTRATIONS OF CREDIT
The Bank provides deposit and loan products and other
financial services to consumer and corporate customers located
principally in Mississippi. Securities and short-term investment
activities are conducted with a diverse group of domestic governments,
corporations and depository and other financial institutions. The Bank
evaluates the counterparty's creditworthiness and the need for
collateral on a case by case basis. The concentrations of credit by
type of loan are set forth in Note D. The distribution of commitments
to extend credit approximates the distribution of loans outstanding.
Standby letters of credit are granted primarily to commercial
borrowers.
NOTE P. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 requires
disclosure of financial instruments' fair values as well as the
methodology and significant assumptions used in estimating fair values.
These requirements have been incorporated throughout the notes to the
consolidated financial statements. In cases where quoted market prices
are not available, fair values are based on estimates using present
value techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates for those
assets or liabilities cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. All nonfinancial instruments,
by definition, have been excluded from these disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company and may not be indicative
of amounts that might ultimately be realized upon disposition or
settlement of those assets and liabilities.
33
<PAGE> 36
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE P. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
The following methods and assumptions are used to estimate the
fair value of each class of financial instruments for which it is
possible to estimate that value:
CASH, DUE FROM BANKS AND INTEREST-BEARING DEPOSITS WITH OTHER BANKS
Fair value equals the carrying value of such assets.
INVESTMENTS SECURITIES
Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
FEDERAL FUNDS SOLD
Due to the short-term nature of these assets, the carrying
values of these assets approximate their fair value.
LOANS, NET OF ALLOWANCE
For variable rate loans, fair values are based on repricing
dates. The fair value of certain mortgage loans is based on discounted
cash flows with prepayment speeds based on similar mortgage securities.
Fixed rate commercial loans and installment loans were valued using
discounted cash flows. The discount rates used to determine the present
value of these loans were based on interest rates currently being
charged by the bank on comparable loans as to credit risk and term.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness
of the parties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and
the committed rates. The fair value of letters of credit is based on
fees currently charged for similar agreements at the reporting date.
The fees associated with these financial instruments, or the estimated
cost to terminate, as applicable, are immaterial.
34
<PAGE> 37
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE P. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
DEPOSITS
The fair values of demand deposits are, as required by FAS
107, equal to the carrying value of such deposits. Demand deposits
include non-interest bearing demand deposits, savings accounts, NOW
accounts, and money market demand accounts. The discount rate used is
based on interest rates currently being offered by the Bank on
comparable deposits as to amount and term.
SECURITY PARTICIPATIONS
The fair value of security participations approximates their
carrying values, because they reprice within six months or less. The
estimated approximate fair values of the Bank's financial instruments
are as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------
Carrying Amount Fair Value
--------------- ------------
<S> <C> <C>
Financial assets:
Cash and due from banks ............ $ 9,989,000 $ 9,989,000
Interest-bearing deposits with banks $ 96,000 $ 96,000
Federal funds sold ................. $ 3,474,000 $ 3,474,000
Investment securities:
Available-for-sale ............... $ 68,152,000 $ 68,152,000
Loans, net of allowance ............ $136,238,000 $136,391,000
Financial liabilities:
Deposits ........................... $191,136,000 $191,327,000
Security participations ............ $ 11,921,000 $ 11,921,000
</TABLE>
35
<PAGE> 38
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE P. FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
<TABLE>
<CAPTION>
1996
-----------------------------------
Carrying Amount Fair Value
--------------- ------------
<S> <C> <C>
Financial assets:
Cash and due from banks ............ $ 10,219,000 $ 10,219,000
Interest-bearing deposits with banks $ 87,000 $ 87,000
Federal funds sold ................. $ 16,080,000 $ 16,080,000
Investment securities:
Available-for-sale ............... $ 42,914,000 $ 42,914,000
Loans, net of allowance ............ $130,864,000 $131,148,000
Financial liabilities:
Deposits ......................... $177,269,000 $177,652,000
Security participations .......... $ 9,812,000 $ 9,812,000
</TABLE>
NOTE Q. COMMITMENTS AND CONTINGENCIES
The Bank has an agreement with its Chairman whereby, if
certain conditions are met, specified supplemental benefits are
available upon termination of employment.
The Bank is involved in certain litigation incurred in the
normal course of business. In the opinion of management and legal
counsel, liabilities arising from such claims, if any, would not have a
material effect upon the Bank's consolidated financial statements.
The future minimum rental commitments for other non-cancelable
operating leases as of December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 115,291
1999........................................................ 105,291
2000........................................................ 47,124
2001........................................................ 19,082
2002........................................................ --
------------
Total minimum lease payments................................ $ 286,788
============
</TABLE>
Rental expense of approximately $90,000 in 1997 and $91,000
in1996, includes amounts for short-term cancelable leases and minimum
rentals under non-cancelable operating leases.
36
<PAGE> 39
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE R. SUMMARIZED FINANCIAL INFORMATION OF MERCHANTS CAPITAL CORPORATION
Summarized financial information of Merchants Capital
Corporation, parent company only, is as follows:
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash ............................ $ 2,079,267 $ 1,314,664
Investments in Merchants Bank ... 17,316,055 16,236,154
Other assets .................... 3,722 1,896
----------- -----------
$19,399,044 $17,552,714
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Other liabilities ............... $ 779,784 $ 548,325
Stockholders' equity ............ 18,619,260 17,004,389
----------- -----------
$19,399,044 $17,552,714
=========== ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
REVENUE:
Dividends received - Merchants Bank $ 1,974,356 $ 1,231,762
Interest earned ................. -- 197
----------- -----------
1,974,356 1,231,959
EXPENSES ............................ 11,020 14,499
----------- -----------
1,963,336 1,217,460
EQUITY IN UNDISTRIBUTED EARNINGS -
Merchants Bank .................. 1,039,259 1,408,813
----------- -----------
NET INCOME .......................... $ 3,002,595 $ 2,626,273
=========== ===========
</TABLE>
37
<PAGE> 40
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements - Continued
Years Ended December 31, 1997 and 1996
NOTE R. SUMMARIZED FINANCIAL INFORMATION OF MERCHANTS CAPITAL CORPORATION -
CONTINUED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 3,002,595 $ 2,626,273
Adjustments to reconcile net income to net Cash provided by
operating activities:
Undistributed earnings of affiliates ........................... (1,039,259) (1,408,813)
(Increase) decrease in other assets ............................ (1,826) 2,817
----------- -----------
Net cash provided by operating activities ................... 1,961,510 1,220,277
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of fractional shares ...................................... (8,425) (8,184)
Dividends paid .................................................... (1,188,482) (1,063,187)
----------- -----------
Net cash used in financing activities ....................... (1,196,907) (1,071,371)
----------- -----------
INCREASE IN CASH ...................................................... 764,603 148,906
CASH AT BEGINNING OF YEAR ............................................. 1,314,664 1,165,758
----------- -----------
CASH AT END OF YEAR ................................................... $ 2,079,267 $ 1,314,664
=========== ===========
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared but not paid ................................... $ 779,784 $ 548,325
=========== ===========
Stock dividends declared .......................................... $ 1,229,725 $ 1,137,708
=========== ===========
Change in unrealized gains on securities available-for-sale, net
of deferred income taxes ........................................ $ 40,642 $ 55,057
=========== ===========
</TABLE>
38
<PAGE> 41
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE BUSINESS OF MERCHANTS CAPITAL CORPORATION
Merchants Capital Corporation (the Company) is comprised of one
subsidiary, Merchants Bank (the Bank) and its wholly owned subsidiaries,
Merchants Credit Company and Merchant Insurance Agency, Inc. Merchants Bank is
engaged primarily in the same business operations as most independent commercial
banks, with special emphasis in retail banking, including the acceptance of
checking and savings deposits, and the making of commercial, real estate,
personal, home improvement, automobile and other installment and term loans. The
Bank also offers, among services, travelers' cheques, safe deposit boxes, and
other customary bank services to its customers, including trust services. In
addition, the Bank offers drive up teller services, automated teller machines
and night depository facilities. Merchants Bank is insured under the Federal
Deposit Insurance Act and is a member of the Federal Reserve System.
OVERVIEW OF 1997
Merchants Capital Corporation enjoyed net income for the year 1997 of
$3.0 million compared to $2.6 million for the same period in 1996. An increase
in net earning assets of approximately 11.1% with a slight decrease in net
interest margin of 1.4% provided for a significant portion of the increase in
1997. Earnings per common share were $4.04 and $3.54 for the years ended 1997
and 1996, respectively. Return on average assets was 1.4% for the current year,
and 1.29% in the same period of 1996. For the years ended 1997 and 1996, return
on average equity was 16.72% and 16.00%, respectively.
During the year 1997, in comparison with the same period of 1996,
average loans outstanding increased approximately $2 million or 1.5% due to an
increased loan demand. Average total deposits for the year 1997 increased $9.5
million or 5.1% when compared to average total deposits for the same period of
1996. Average total assets for the current year increased $11.2 million or 5.5%
when compared to the total average assets of the year 1996. Average
shareholders' equity for 1997 was $17.9 million, an increase of 9.4% over the
average shareholders' equity for 1996.
EARNINGS ANALYSIS
Net interest income - Net interest income is the difference between
interest and fees generated from interest earning assets and the interest
expense for interest bearing liabilities and is the primary source of earnings
for the Bank. For analytical purposes, net interest income is presented on a tax
equivalent basis. A 34% tax rate is used for 1997, 1996, and 1995. Certain
earning assets are exempt from income taxes, therefore, a tax equivalent
adjustment is included so that tax exempt earning assets will be compatible with
other earning assets. The primary factors that affect net interest income are
the changes in volume and mix of earning assets and interest-bearing
liabilities, along with the change in market rates.
Net interest income on a fully tax equivalent basis (FTE) increased
approximately $491 thousand or 5.5%. Net interest income (FTE) for 1997 was $9.4
million compared to $8.9 million for the prior year. When comparing the results
of 1996 to 1995, net interest income (FTE) increased $558 thousand or 6.7% from
$8.3 million to $8.9 million.
39
<PAGE> 42
Net Interest Income (Fully Taxable Equivalent)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income ............................ $16,671,228 $15,684,668 $14,622,010
Interest Expense ........................... 7,403,036 6,903,972 6,362,442
----------- ----------- -----------
Net Interest Income ........................ 9,268,192 8,780,696 8,259,568
Tax Equivalent Adjustment to Interest Income 123,041 119,372 82,185
----------- ----------- -----------
Net Interest Income
(Fully Taxable Equivalent) ............. $ 9,391,233 $ 8,900,068 $ 8,341,753
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
INCREASE (DECREASE) INCREASE (DECREASE)
1997 TO 1996 1996 TO 1995
------------ ------------
<S> <C> <C>
Interest Income ..................... $986,560 $1,062,658
Interest Expense .................... 499,064 541,530
-------- ----------
Net Interest Income ................. 487,496 521,128
Tax Equivalent Adjustment to Interest
Income .......................... 3,669 37,187
-------- ----------
Net Interest Income
(Fully Taxable Equivalent) ...... $491,165 $ 558,315
======== ==========
</TABLE>
Earning Assets, Interest Bearing Liabilities, and Net Interest
Spread - Average earning assets increased $11 million or 5.9% to $201
million during 1997. Average earning assets were $190 million in 1996
and $175 million in 1995. This was driven by a 1.5% increase in average
loans and a 20.2% increase in average securities. The trend in earning
assets over the years compared shows a shift in the mix of earning
assets toward the loan portfolio as shown in the table Average Earning
Asset Structure. Management has strategized to increase the Bank's
earning asset mix to include a greater percentage of higher yielding
loans over lower yielding securities. The loan portfolio comprises 66%
of the average earning assets in 1997 as compared to 69% in 1996. The
trend over the years compared shows the mix of interest bearing
liabilities shifted to higher interest bearing certificates of deposit
and interest sensitive deposits from the lower interest bearing
savings. The growth is attributed to a concerted effort by the Bank to
attract a broader core deposit base consisting of commercial and
personal customers.
The table of Average Balance Sheets and Interest Rate Analysis
for the periods ended December 31, 1997, December 31, 1996, and
December 31, 1995, and the corresponding table of Interest
Differentials detail the effect a change in average balances
outstanding and the change in interest yield and costs have on net
interest income for the respective periods. Also, the tables of Average
Earning Asset Structure and Average Deposit Structure show a more
condensed, descriptive analysis of the common size percentage changes
in average earning assets and average deposit mix over the annual
periods analyzed. Average earning asset structure in thousands
40
<PAGE> 43
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ------------------- -------------------
% of % of % of
Average Earnings Average Earnings Average Earnings
Balances Assets Balances Assets Balances Assets
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Time Deposits ....... $ -- 0.00% $ 548 0.29% $ 383 0.22%
Federal Funds Sold .. 7,423 3.68% 7,867 4.14% 6,718 3.83%
Securities
Taxable ............ 57,418 28.50% 47,118 24.77% 51,728 29.51%
Non-taxable ........ 4,079 2.02% 4,026 2.12% 2,747 1.57%
Loans - Net ......... 132,620 65.80% 130,637 68.68% 113,729 64.87%
-------- ------ -------- ------ -------- ------
Total average earning
assets .............. $201,540 100.00% $190,196 100.00% $175,305 100.00%
======== ======= ======== ======= ======== =======
</TABLE>
41
<PAGE> 44
Average Deposit Structure in Thousands
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- ------------------- -------------------
% of % of % of
Average Earnings Average Earnings Average Earnings
Balances Assets Balances Assets Balances Assets
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Noninterest Bearing
Deposits ......... $ 21,933 12.20% $ 20,933 $ 11.90% 20,162 12.30%
Interest Bearing Demand
Deposits ......... 79,774 44.40% 76,328 43.60% 71,353 43.50%
Savings Accounts .... 11,203 6.20% 11,866 6.80% 12,274 7.50%
Certificates of Deposits
less than $100,000.... 45,522 25.40% 52,480 30.00% 50,395 30.70%
-------- ------ -------- ------ -------- ------
Total Average Core
Deposits ......... 158,432 88.20% 161,607 92.30% 154,184 94.00%
Certificates of Deposits
greater than $100,000 21,034 11.80% 13,333 7.70% 9,888 6.00%
-------- ------ -------- ------ -------- ------
Total Average Deposits.. $179,466 100.00% $174,940 100.00% $164,072 100.00%
======== ======= ======== ======= ======== =======
Average Interest Bearing
Liabilities as a
percentage of Earning
Assets ........... 86.08% 86.73% 86.14%
Average Core Deposits
as a percentage of
Total Average Assets. 73.71% 79.32% 82.34%
</TABLE>
For the year ended 1997, the average yield on earning assets
was 8.33%, while the average cost of interest bearing funds was 4.27%,
producing a net interest spread (FTE) of 4.06%. The net interest margin
(FTE) was 4.66% for the year ended 1997. In comparison, the net
interest margin (FTE) for the year ended 1996 was 4.67%. The increase
in net interest income resulted from an increase in interest earning
assets offset by an increase in interest bearing liabilities.
The following table (Interest Differentials) provides
additional information relating to the effect change in interest yield
has on net income:
42
<PAGE> 45
INTEREST DIFFERENTIALS
<TABLE>
<CAPTION>
1997/1996
------------------------------------------------------------------
Change In Change In Changes In Total
Volume Rate Rate/volume Change
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Earning Assets
Federal Funds Sold ............. $ (22,977) $ 14,995 $ (847) $ (8,829)
Securities:
Taxable ..................... 579,893 76,975 17,057 673,925
Nontaxable .................. 4,666 6,046 80 10,792
Other securities ............ 3,554 604 40 4,198
Time deposits .................. (38,425) (38,425) 38,425 (38,425)
Loans .......................... 187,228 158,928 2,412 348,568
--------- --------- --------- ---------
Total Interest Income ....... 713,939 219,123 57,167 990,229
--------- --------- --------- ---------
Interest Bearing Liabilities
Interest Bearing Demand Deposits 130,008 39,026 1,763 170,797
Savings ........................ (16,710) (4,709) 262 (21,157)
Certificates of Deposit ........ 37,843 36,397 411 74,651
Other Borrowings ............... 170,533 71,536 32,705 274,774
--------- --------- --------- ---------
Total Interest Expense ......... 321,672 142,250 35,141 499,063
--------- --------- --------- ---------
Increase (Decrease) in Interest
Differential ................... $ 392,266 $ 76,873 $ 22,026 $ 491,165
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1997/1996
------------------------------------------------------------------
Change In Change In Changes In Total
Volume Rate Rate/volume Change
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Earning Assets
Federal Funds Sold ................ $ 66,934 $ (43,887) $ (7,505) $ 15,542
Securities:
Taxable .................. (274,809) (108,900) 10,007 (373,702)
Nontaxable ............... 112,580 (2,186) (1,018) 109,376
Other securities ......... 4,305 (4,974) (391) (1,060)
Time deposits ................. 16,455 (11,402) (4,902) 151
Loans ......................... 1,633,485 (247,196) (36,751) 1,349,538
--------- --------- --------- ---------
Total Interest Income ............. 1,558,950 (418,545) (40,560) 1,099,845
--------- --------- --------- ---------
Interest Bearing Liabilities
Interest Bearing Demand Deposits 193,820 (88,678) (6,180) 98,962
Savings ....................... (11,373) (32,564) 1,083 (42,854)
Certificates of Deposit ....... 275,275 70,243 6,443 351,961
Other Borrowings .............. 130,057 2,206 1,198 133,461
--------- --------- --------- ---------
Total Interest Expense ... 587,779 (48,793) 2,544 541,530
--------- --------- --------- ---------
Increase (Decrease) in Interest
Differential ................ $ 971,171 $(369,752) $ (43,104) $ 558,315
========= ========= ========= =========
</TABLE>
43
<PAGE> 46
AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
<TABLE>
<CAPTION>
1997
----------------------------------------------------
Income/ Yield/
ASSETS Average Balance Expense Rate
- ------ --------------- ------- ----
<S> <C> <C> <C>
Loans (1) (2) ........................... $ 132,619,767 $12,685,422 9.57%
------------- -----------
Investment Securities:
U. S. Government and Other .......... 56,450,651 3,290,929 5.83%
State and Municipal (3) ............. 4,079,175 361,887 8.87%
Other Securities .................... 966,991 57,966 5.99%
------------- -----------
Total Investment Securities ....... 61,496,817 3,710,782 6.03%
Federal Funds Sold ...................... 7,422,950 398,065 5.36%
Time Deposits ........................... 0 0 0
------------- -----------
Total Earning Assets .............. 201,539,534 $16,794,269 8.33%
=============
Allowance for Loan Losses ............... (1,642,960)
Cash and Due from Banks ................. 7,221,758
Bank Premises and Equipment ............. 2,684,535
Market Value Adjustment - Investments ... 27,085
Other Assets ............................ 5,106,379
-------------
Total Assets ...................... $ 214,936,331
=============
Liabilities And Stockholders' Equity
Interest Bearing Deposits:
Interest Bearing Demand Deposits .... $ 79,774,260 $ 3,049,822 3.82%
Savings ............................. 11,203,097 277,922 2.48%
Certificates of Deposit ............. 66,555,932 3,427,510 5.15%
------------- -----------
Total Interest Bearing Deposits ... 157,533,289 6,755,254 4.29%
Other Borrowings ........................ 15,947,833 647,782 4.06%
------------- -----------
Total Interest Bearing Liabilities 173,481,122 $ 7,403,036 4.27%
=============
Non-interest Bearing Deposits ........... 21,933,255
Other Liabilities ....................... 1,559,830
Stockholders' Equity .................... 17,962,124
-------------
Total Liabilities And Stockholders'
Equity ......................... $ 214,936,331
=============
</TABLE>
44
<PAGE> 47
AVERAGE BALANCE SHEETS AND INTEREST RATE ANALYSIS
<TABLE>
<S> <C> <C>
Net Interest Income -
Tax Equivalent Basis ................ $ 9,391,233
Tax Equivalent Adjustment ........... (123,041)
-------------
Net Interest Income .................. $ 9,268,192
=============
Interest Income and Rate Earned ......... $ 16,794,269 8.33%
Interest Expense and Rate Paid .......... 7,403,036 4.27%
------------- -----------
Interest Rate Spread .................... 4.06%
=============
Net interest income and net yield on
average earning assets .................. $ 9,391,233 4.66%
============= ===========
</TABLE>
45
<PAGE> 48
<TABLE>
<CAPTION>
1996
----------------------------------------------------
Income/ Yield/
ASSETS Average Balance Expense Rate
- ------ --------------- ------- ----
<S> <C> <C> <C>
Loans (1) (2) ........................... $ 130,637,173 $12,336,854 9.44%
------------- -----------
Investment Securities:
U. S. Government and Other .......... 46,210,934 2,617,004 5.66%
State and Municipal (3) ............. 4,025,673 351,095 8.72%
Other Securities .................... 907,042 53,768 5.93%
------------- -----------
Total Investment Securities ............. 51,143,649 3,021,867 5.90%
Federal Funds Sold ...................... 7,867,210 406,894 5.17%
Time Deposits ........................... 547,841 38,425 7.01%
------------- -----------
Total Earning Assets .................... 190,195,873 $ 5,804,040 8.31%
=============
Allowance for Loan Losses ............... (1,590,744)
Cash and Due from Banks ................. 6,808,281
Bank Premises and Equipment ............. 2,784,454
Market Value Adjustment - Investments ... (60,061)
Other Assets ............................ 5,600,609
-------------
Total Assets ........................... $ 203,738,412
=============
Liabilities And Stockholders' Equity
Interest Bearing Deposits:
Interest Bearing Demand Deposits .... $ 76,327,557 $ 2,879,027 3.77%
Savings ............................. 11,866,057 299,077 2.52%
Certificates of Deposit ............. 65,813,116 3,352,860 5.09%
------------- -----------
Total Interest Bearing Deposits ......... 154,006,730 6,530,964 4.24%
Other Borrowings ........................ 10,944,299 373,008 3.41%
------------- -----------
Total Interest Bearing Liabilities ...... 164,951,029 $ 6,903,972 4.19%
=============
Non-interest Bearing Deposits ........... 20,932,669
Other Liabilities ....................... 1,442,504
Stockholders' Equity .................... 16,412,210
Total Liabilities And Stockholders' Equity $ 203,738,412
=============
Net Interest Income...................... $ 8,900,068
</TABLE>
46
<PAGE> 49
<TABLE>
<S> <C> <C>
Tax Equivalent Basis ................ (119,372)
Tax Equivalent Adjustment............
-------------
Net Interest Income ..................... $ 8,780,696
=============
Interest Income and Rate Earned ......... $ 15,804,040 8.31%
Interest Expense and Rate Paid .......... 6,903,972 4.19%
------------- -----------
Interest Rate Spread .................... 4.12%
=============
Net Interest Income and Net Yield on
Average Earning Assets .................. $ 8,900,068 4.67%
============= ===========
</TABLE>
47
<PAGE> 50
<TABLE>
<CAPTION>
1995
----------------------------------------------------
Income/ Yield/
ASSETS Average Balance Expense Rate
- ------ --------------- ------- ----
<S> <C> <C> <C>
Loans (1) (2) ........................... $ 113,729,061 $10,987,315 9.66%
------------- -----------
Investment Securities:
U. S. Government and Other .......... 50,886,807 2,990,707 5.88%
State and Municipal (3) ............. 2,746,504 241,720 8.80%
Other Securities .................... 841,010 54,827 6.52%
------------- -----------
Total Investment Securities ....... 54,474,321 3,287,254 6.03%
Federal Funds Sold ...................... 6,718,178 391,352 5.83%
Time Deposits ........................... 383,125 38,274 9.99%
------------- -----------
Total Earning Assets .............. 175,304,685 $14,704,195 8.39%
=============
Allowance for Loan Losses ............... (1,716,222)
Cash and Due from Banks ................. 6,766,234
Bank Premises and Equipment ............. 2,573,162
Market Value Adjustment - Investments ... (445,454)
Other Assets ............................ 4,763,441
Total Assets ...................... $ 187,245,846
=============
Liabilities and Stockholders' Equity
Interest Bearing Deposits:
Interest Bearing Demand Deposits .... $ 71,352,976 $ 2,780,065 3.90%
Savings ............................. 12,274,310 341,931 2.79%
Certificates of Deposit ............. 60,283,289 3,000,899 4.98%
------------- -----------
Total Interest Bearing Deposits ... 143,910,575 6,122,895 4.25%
Other Borrowings ........................ 7,093,189 239,547 3.38%
------------- -----------
Total Interest Bearing Liabilities 151,003,764 $ 6,362,442 4.21%
=============
Non-interest Bearing Deposits ........... 20,161,526
Other Liabilities ....................... 1,508,526
Stockholders' Equity .................... 14,572,030
-------------
Total Liabilities And Stockholders'
Equity $ 187,245,846
=============
Net Interest Income -
Tax Equivalent Basis ................ $ 8,341,753
Tax Equivalent Adjustment ........... (82,185)
-------------
</TABLE>
48
<PAGE> 51
<TABLE>
<S> <C> <C>
Net Interest Income ..................... $ 8,259,568
=============
Interest Income and Rate Earned ......... $ 14,704,195 8.39%
Interest Expense and Rate Paid .......... 6,362,442 4.21%
------------- -----------
Interest Rate Spread .................... 4.18%
Net Interest Income And Net Yield On ===========
Average Earning Assets .................. $ 8,341,753 4.76%
=============
</TABLE>
(1) Nonaccrual loans are included in average balances for yield computations
(2) Includes loan fees and late charges in both interest income and yield
computations
(3) Tax equivalent basis - 34% rate for 1997, 1996 and 1995
PROVISION FOR LOAN LOSSES
Provision for loan losses was $420 thousand for 1997, an increase of
$100 thousand from the provision for loan losses of $320 thousand for 1996. Net
charge offs were $374 thousand for 1997 as compared to $241 thousand for 1996.
As a percentage of average loans, net charge offs (recoveries) were .28% in 1997
and .18% in 1996. Gross charge offs were .48% in 1997 and .41% in 1996.
Recoveries as a percentage of gross charge offs were 41.5% in 1997 and 55.3% in
1996.
The provision for loan losses in 1995 was $140 thousand. In 1995, net
recoveries were $54 thousand, or (.05)% of average loans. Gross charge offs were
.21% of average loans and recoveries were 122.7% of gross charge offs. More
specifics can be found in the sections entitled Allowance for Loan Losses and
Nonperforming Assets.
OTHER INCOME
Other income for 1997 was $2.9 million, compared to $2.7 million in
1996. Exclusive of securities transactions other income increased $156 thousand.
Service charges on deposit accounts were $1.135 million for 1997, an
increase of $61 thousand or 5.7% over 1996. Service charges on deposit accounts
were $1.074 million in 1996. The primary reason for the increase in 1997 was a
$77 thousand increase in nonsufficient funds charges on deposit accounts.
Fees for other customer services were $838 thousand for 1997, a
decrease of $12 thousand or 1.4% over 1996. Fees for other customer services
were $850 thousand in 1996. Included in fees for other customer services are ATM
charges, release fees on mortgage loans sold, fees for originating credit life
insurance for underwriters and Visa/Mastercard handling charges for merchants.
One reason for the decrease in 1997, was fewer commissions, approximately $17
thousand, earned on credit life policies written for the Bank's loans. ATM
related charges increased $5 thousand from 1996 to 1997.
Trust fees increased $78 thousand or 18.8% from 1996 largely due to
growth in the number of accounts managed by the trust department since 1996 and
asset value of the related trust accounts. The trust department of the Bank
provides asset management services for its trust customers. The trust department
has over $67,000,000 in assets under its administration.
49
<PAGE> 52
Net investment securities gains increased other income by $19 thousand
for 1997, compared to a net loss on investment securities of $50 thousand in
1996. Transactions for both years, though small in the number of transactions,
were mainly to reposition the Bank's portfolio for the possibility of a changing
investment environment and the growth experienced in the loan portfolio.
Other operating income for 1997 was $414 thousand compared to the 1996
total of $386 thousand. Included in other operating income are fees earned for
providing computer services to other banks, bank premises rental, safe deposit
box rentals and other operating fees associated with the daily operations of the
Bank. The primary factor contributing to the increase of $28 thousand for 1997
was an increase of $16 thousand in sale of other real estate, an increase of $23
thousand in alternative investment fee income and an increase of $7 thousand in
rentals of bank premises. Areas that noted declines were data processing fee
income of $12 thousand and check sales of $12 thousand.
OTHER EXPENSES
Other expenses totaled $7.2 million in 1997, a 1.4% increase over the
1996 total of $7.1 million. Salary and employee benefits increased $24 thousand
or .64%, to $3.8 million for 1997 when compared to $3.7 million for 1996. This
increase is due to the effects of employee and management raises for 1997.
Net occupancy expense was $514 thousand for 1997, versus $551 thousand
for 1996, a decrease of $37 thousand or 6.7%. The main factor contributing to
this decrease was a $25 thousand decline in utilities costs.
Equipment expense totaled $567 thousand for 1997 as compared to $561
thousand in 1996. This $6 thousand or 1% increase is mainly attributed to
increased costs of outside equipment rentals amounting to $20 thousand in 1997
with a resulting decrease in repairs and maintenance of equipment of $14
thousand.
Other operating expenses totaled $2.345 million for 1997 compared to
$2.238 for 1996, an increase of $107 thousand or 5%. For further analysis of
other operating expense see Note L.
APPLICABLE INCOME TAXES
Applicable income taxes for 1997, 1996 and 1995 were $1.5 million, $1.4
million and $1.1 million, respectively, producing an effective tax rate of
33.5%, 34.3%, and 33.7%, respectively. The Company's effective income tax
expense as a percentage of pretax income is different from statutory rates (34%
Federal and 5% State) because of tax-exempt income and the related nondeductible
interest expense. A portion of the Bank's interest income is from investments in
state and municipal bonds and is generally exempt from federal and state income
taxes.
LIQUIDITY
Liquidity management is the process of ensuring that the Bank's asset
and liability structure is the proper mix to meet the withdrawals of its'
depositors, and to fund loan commitments and other funding requirements.
Management's primary source of funds is the Bank's core deposit base. At
December 31, 1997, the average core deposits were approximately $174 million or
89% of total average deposits and 81% of total average assets. For a comparison
with prior period year ends, see the table entitled Average Deposit Structure.
Other sources of liquidity are maturities in the investment portfolio and loan
maturities and repayments. Management continually evaluates the
50
<PAGE> 53
maturities and mix of its earning assets and interest-bearing liabilities to
monitor its ability to meet current and future obligations and to achieve
maximum net interest income. Due to the stability of the core deposit base as
noted above and the maturities of the investment portfolio, management does not
anticipate any difficulties in meeting the needs of its depositors nor in
funding future loan commitments.
INTEREST RATE RISK
The primary assets of banks are portfolios of investment securities and
loans, while liabilities are primarily composed of interest bearing deposits and
borrowed funds. Assets and liabilities have varying maturities and the
associated rates may be fixed or variable. Asset/liability management techniques
are used to maintain appropriate levels and relationships between rate-sensitive
assets and liabilities to maximize overall returns to the extent possible, while
minimizing the risk of loss associated with significant, often unforeseen,
shifts in overall interest rates.
Management utilizes computerized interest rate simulation analysis as
its primary measure of interest rate sensitivity. Management's analysis
indicates that the Bank is liability sensitive for the first three months and
over five years. A liability sensitive company will generally benefit from a
falling interest rate environment as the cost of interest bearing liabilities
falls faster than the yields on interest bearing assets, thus creating a
widening of the net interest margin. An asset sensitive company will benefit
from a rising interest rate environment as the yields on earning assets rise
faster than costs of interest bearing liabilities.
A traditional measure of interest rate sensitivity is the difference
between the volumes of assets and liabilities in the Company's current portfolio
that are subject to repricing at various time horizons. These differences are
known as interest sensitivity gaps; immediate to three months, four to twelve
months, one to five years, over five years, and on a cumulative basis. The
following table shows interest sensitivity gaps as of December 31, 1997.
51
<PAGE> 54
<TABLE>
<CAPTION>
91-365 1 Year-5 Over 5 Non-
0-90 Days Days Years Years Sensitive Total
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Securities................ $ 16,731 $ 23,485 $ 24,870 $ 3,066 $ -- $ 68,152
Loans, Net of Unearned
Income.................. 49,444 30,723 52,351 3,720 -- 136,238
Federal Funds Sold........ 3,474 -- -- -- -- 3,474
Other Assets.............. -- -- -- -- 16,135 16,135
-------- -------- -------- -------- --------- --------
Total Assets..... $ 69,649 $ 54,208 $ 77,221 $ 6,786 $ 16,135 $223,999
======== ======== ======== ======== ========= ========
Liabilities
Interest Bearing
Demand Deposits......... $ 42,723 $ 3,388 $ 25,501 $ 12,751 $ -- $ 84,363
Savings Deposits.......... 3,649 -- 4,865 2,432 -- 10,946
Certificates of Deposit... 24,935 27,103 16,471 1,940 -- 70,449
Demand Deposits........... -- -- -- -- 25,378 25,378
Other Liabilities......... 7,853 -- -- 3,974 2,417 14,244
Stockholders' Equity...... -- -- -- -- 18,619 18,619
-------- -------- -------- -------- --------- --------
Total Liabilities and
Stockholders' Equity.......... $ 79,160 $ 30,491 $ 46,837 $ 21,097 $ 46,414 $223,999
======== ======== ======== ======== ========= ========
Interest Rate
Sensitivity Gap............ $ (9,511) $ 23,717 $ 30,384 $(14,311) $ (30,279)
Cumulative Interest...........
Rate Sensitivity Gap......... $ (9,511) $ 14,206 $ 44,590 $ 30,279 $ --
</TABLE>
Changes in the mix of earning assets or supporting liabilities can
either increase or decrease the net interest margin without affecting interest
rate sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and liability remains the same, thus impacting net interest
income. Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis report. These prepayments may have significant
effects on the Bank's net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of exposure to
changes in interest rates.
Management also evaluates the condition of the economy, the pattern of
market interest rates and other economic data to determine the appropriate mix
and repricing characteristics of assets and liabilities required to produce an
optimal net interest margin.
FINANCIAL INSTRUMENTS
In the normal course of business the Bank enters into agreements which,
for accounting purposes, are considered off-balance sheet activities. These
agreements are loans and lines of credit commitments to customers to extend
credit at specified rates, duration and purpose. The commitments adhere to
normal lending policy, collateral requirements, and credit reviews. Available
52
<PAGE> 55
loan commitments at December 31, 1997, were $22 million and $24 million at
December 31, 1996. The Bank has letters of credit of $2 million issued at
December 31, 1997. Additionally, the Bank has deposit customers who have credit
lines available to them through their deposit accounts. At December 31, 1997,
the available portion of these credit lines was $540 thousand. These credit
lines are immediately cancelable by the Bank. The credit lines provide a source
of income to the Bank through service fees charged and interest earned on
balances outstanding. The credit lines are reviewed regularly and do not pose a
material credit risk to the Bank. To date the Bank does not have instruments
outstanding that can be specifically described as a financial guarantee which
guarantees the performance of a customer to a third party other than the standby
letters of credit described above.
The Bank began issuing credit cards during 1989. As of December 31,
1997 and 1996, the aggregate credit available was $6.5 million and $6.4 million,
respectively. Applicants are reviewed through normal lending policies and credit
reviews. The Bank is not a party to financial instruments defined as interest
rate exchange agreements, financial futures, or financial options. Therefore,
the Bank is not exposed to interest rate risk in excess of the amount recognized
in the consolidated balance sheets as that risk may apply to interest rate
exchange agreements, financial futures, or financial options.
LOANS
An analysis of the loan portfolio at December 31, 1997, 1996, 1995,
1994, and 1993, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Commercial, industrial
and agricultural......... $105,413,674 $104,628,274 $100,461,319 $ 77,687,198 $67,288,411
Real estate - construction... 4,746,600 5,742,457 8,206,698 4,061,067 5,690,354
Real estate - mortgage....... 7,735,935 8,567,614 4,279,069 3,988,030 3,629,264
Installment.................. 21,529,964 15,160,530 16,339,010 16,853,099 16,666,710
------------ ------------ ------------ ------------ -----------
$139,426,173 $134,098,875 $129,286,096 $102,589,394 $93,274,739
============ ============ ============ ============ ===========
</TABLE>
Following is the detail of maturities and sensitivity of loans to
changes in interest rates at December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997 Loans to Mature
---------------------------------------------------------------------
Less than One to Greater than
One Year Five Years Five Years Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Commercial......................... $48,916,967 $50,888,633 $4,565,461 $104,371,061
Mortgage........................... 1,199,995 2,749,097 3,786,843 7,735,935
Installment........................ 7,729,227 13,659,428 141,309 21,529,964
----------- ----------- ---------- ------------
Total.............................. $57,846,189 $67,297,158 $8,493,613 $133,636,960
=========== =========== ========== ============
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
Loans Due After One Year at December 31, 1997
------------------------------------------------------
Interest Rates
---------------------------------
Predetermined Adjustable Total
------------- ----------- -----------
<S> <C> <C> <C>
Commercial......................... $45,164,945 $ 9,839,149 $55,454,094
Mortgage........................... 3,874,923 2,661,017 6,535,940
Installment........................ 13,800,737 -- 13,800,737
----------- ----------- -----------
Total.............................. $63,290,605 $12,500,165 $75,790,771
=========== =========== ===========
</TABLE>
The Company has no foreign loans.
54
<PAGE> 57
SECURITIES
Following is the detail of maturities and weighted average yield for
each maturity group at December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------
Weighted
Average Book
Yield Value
-------- -----------
<S> <C> <C>
U.S. Government Securities:
Within 1 year...................................................... 5.87% $13,786,082
After 1 year, but within 5 years................................... 6.02% 14,550,957
After 5, but within 10 years....................................... 0.00% --
After 10 years..................................................... 0.00% --
----- -----------
Total U.S. Government Securities............................... 5.94% $28,337,039
===== ===========
Securities of U.S. Government Agencies and Corporations:
Within 1 year...................................................... 5.38% $19,399,922
After 1 year, but within 5 years................................... 5.98% 9,125,646
After 5, but within 10 years....................................... 6.85% 2,251,119
After 10 years..................................................... 6.56% 3,563,278
----- -----------
Total Securities of U.S. Government Agencies and Corporations.. 5.75% $34,339,965
===== ===========
<CAPTION>
Weighted
Average Book
Yield Value
-------- -----------
<S> <C> <C>
Obligations of States and Political Subdivisions' pre tax yields:
Within 1 year...................................................... 6.19% $ 1,338,023
After 1 year, but within 5 years................................... 5.12% 1,675,972
After 5, but within 10 years....................................... 6.26% 1,342,407
After 10 years..................................................... 0.00% --
----- -----------
Total Obligations of States and Political Subdivisions......... 5.81% $ 4,356,402
===== ===========
Other Securities - Equity............................................... 5.83% $ 974,900
----- -----------
Total Other Securities......................................... 5.83% $ 974,900
===== ===========
</TABLE>
55
<PAGE> 58
An analysis of the investment portfolio at December 31, 1997,
1996, and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury and other U. S. Government agencies and
corporations......................................... $58,484,725 $27,960,431 $36,064,435
Mortgage-backed securities................................ 4,192,279 10,368,222 12,696,096
States and political subdivisions......................... 4,356,402 3,584,093 2,952,694
Other securities.......................................... 974,900 924,200 844,350
----------- ----------- -----------
$68,008,306 $42,836,946 $52,557,575
=========== =========== ===========
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $1.592 million at year end 1997 or
1.14% of total loans outstanding. At year end 1996, the allowance for loan
losses was $1.545 million or 1.15% of total loans outstanding. The allowance for
loan losses account represents amounts available for possible future losses
based on modeling and management's evaluation of the loan portfolio. To
ascertain the potential losses in the portfolio, management reviews past due
loans on a monthly basis. Additionally, the loan review function performs an
ongoing review of the loan portfolio. Loans are reviewed for compliance to the
Bank's lending policy and the borrower's current financial condition and ability
to meet scheduled repayment terms. Based on these functions and management's
knowledge of the Bank's borrowers, the allowance for loan losses in management's
judgment, is adequate to absorb potential loan losses based on the current
quality of the loan portfolio.
Activity in Allowance for Loan Losses, below, presents an analysis of
activity in the allowance for loan losses for the past five years.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning balance....................... $1,545,820 $1,466,840 $1,273,160 $1,232,880 $1,431,262
---------- ---------- ---------- ---------- ----------
Loans charged off
Commercial, industrial and
agricultural..................... 348,522 292,853 81,055 144,313 341,304
Installment and others.............. 290,022 237,048 155,555 206,966 219,271
Mortgage............................ -- 8,746 -- -- --
---------- ---------- ---------- ---------- ----------
Total Charged off................... 638,544 538,647 236,610 351,279 560,575
---------- ---------- ---------- ---------- ----------
Loan Recoveries
Commercial, industrial and
agricultural..................... 135,308 161,605 198,617 75,307 108,837
Installment and others.............. 129,428 136,022 91,673 126,252 153,356
Mortgage............................ -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Recoveries.................... 264,736 297,627 290,290 201,559 262,193
---------- ---------- ---------- ---------- ----------
Net loans charged off................... 373,808 241,020 (53,680) 149,720 298,382
Provision charged to expense............ 420,000 320,000 140,000 190,000 100,000
---------- ---------- ---------- ---------- ----------
Ending Balance.......................... $1,592,012 $1,545,820 $1,466,840 $1,273,160 $1,232,880
========== ========== ========== ========== ==========
</TABLE>
56
<PAGE> 59
NONPERFORMING ASSETS
Nonperforming assets include nonaccrual and impaired loans and other
real estate. Loans are considered for nonaccrual status when the principal or
interest becomes 90 days past due or when there is uncertainty about the
repayment of principal and interest in accordance with the terms of the loans.
Nonaccrual loans at December 31, 1997, were $264 thousand and $1.1 million at
December 31, 1996. Loans past due 90 days and still accruing at December 31,
1997 and 1996, were $565 thousand and $477 thousand, respectively. At December
31, 1997, nonaccrual loans were .18% of gross loans outstanding and 17% of the
allowance for loan losses. At December 31, 1996, these ratios were .82% and 71%,
respectively.
The following table presents information on the amounts of
nonperforming loans at December 31, 1997, 1996, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonaccrual......................... $264,000 $1,100,000 $762,000 $668,000 $493,000
Accruing loans past due 90 days or
more............................ $565,000 $ 477,000 $181,000 $ 36,000 $184,000
Trouble debt restructurings........ $377,000 $ 462,000 $228,000 $303,000 $ --
</TABLE>
In the process of reviewing the loan portfolio, management identifies
certain potential problem loans which are not classified as impaired,
nonaccrual, greater than 90 days delinquent, or restructured. Management does
not feel that any of these potential problem loans are reasonably likely to have
or will have a material effect on the Bank's liquidity, capital resources, or
results of operations. Other real estate is properties held for sale acquired
through foreclosure or negotiated settlements of debt. Other real estate
increased $52 thousand during 1997. At December 31, 1997 and 1996, other real
estate was $181 thousand and $129 thousand, respectively. Improvements in
commercial real estate and general economic conditions allowed for a $55
thousand gain on disposition of previously foreclosed properties.
As of December 31, 1997, the Bank knows of no additional loans, other
than those identified above, that Management has serious doubts as to the
ability of such borrowers to repay principal and interest.
REGULATORY MATTERS
The Bank is subject to various capital requirements administered by the
Federal Banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly discretionary - actions by regulators
that, if undertaken, could have a material effect on the Bank's financial
statements. Various regulations require the Bank to meet specific capital
adequacy guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital classification is also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors. Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios as set forth in
the section entitled Capital Adequacy below.
57
<PAGE> 60
Management is unaware, based on recent regulatory examinations or
otherwise, of any known trends, events or uncertainties which are reasonably
likely to have or will have a material effect on the Company's liquidity,
capital resources, or results of operations.
CAPITAL ADEQUACY
The strength of a company is measured by the company's capital,
earnings history, asset quality, and management. Capital can be increased by the
retention of earnings and issuance of equity stock. Management feels the current
trend of earnings and dividend distribution is sufficient to maintain its
capital adequacy requirements.
Some of the more significant ratios are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Return on assets............................. 1.40% 1.29% 1.18%
Return on average equity..................... 16.72% 16.00% 15.13%
Dividend payout.............................. 47.00% 42.00% 45.00%
Equity to assets............................. 8.36% 8.06% 7.78%
</TABLE>
The Bank is required to maintain minimum amounts of capital to total
risk-weighted assets, as defined by the regulators. The guidelines require total
capital of 8.00%, half of which must be Tier 1 capital. The computation of
risk-weighted ratios follow the transitional rule, which currently does not
include the unrealized gain (loss) on securities available for sale in Tier 1
Capital.
The leverage ratio consists of Tier 1 capital as a percentage of
average total assets. The minimum leverage ratios for all banks and bank holding
companies is 3.00%. This minimum ratio is dependent upon the strength of the
individual bank or holding company and may be increased by regulatory
authorities on a individual basis. The 3.00% minimum was established to make
certain that all banks have a minimum capital level to support their assets,
regardless of risk profile. The regulators have not yet established minimum
leverage ratios for the Company. As shown in the table Capital Adequacy Ratios,
the Bank's ratios for the reporting periods exceed regulatory minimums.
The Company dividends are determined by its Board of Directors. The
current policy is to maintain dividends at a level which ensures the Company and
Bank are able to maintain adequate regulatory capital levels. The Company's
primary source of funds is dividends received from the Bank. Under current
dividend limitation regulations, the Bank is required to get regulatory approval
prior to the payment of any dividends. The Company carries no debt; therefore,
future liquidity needs are limited to the payment of any declared dividends.
Capital Adequacy Ratios
(In Thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------- -------
<S> <C> <C>
Tier 1 Capital.................................. $16,776 $15,688
Total Capital................................... $18,368 $17,234
Risk Weighted Ratios:
Tier 1 Capital............................. 11.54% 11.20%
Total Capital.............................. 12.64% 12.31%
Leverage Ratio............................. 7.45% 7.70%
</TABLE>
58
<PAGE> 61
PRINCIPAL OCCUPATION OF THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
This information is included elsewhere in this report in conjunction
with listings of directors and officers.
PRINCIPAL MARKETS AND PRICES OF THE COMPANY'S STOCK
The Company had 538 stockholders as of December 31, 1997. The
Registrant's common stock is not actively traded and management knows of no
market quotations by securities dealers. While a moderate amount of trading in
the Registrant's common stock has taken place since issuance of its shares in
1982, the Registrant does not believe that prices asked for the common stock are
necessarily representative of the prices that would be quoted in an active
trading market.
Cash dividends declared by the Registrant in 1997 and 1996 are
presented below.
<TABLE>
<CAPTION>
Dividends
Period 1996 per Share
----------- ---------
<S> <C>
First Quarter.......................................... .23
Second Quarter......................................... .26
Third Quarter.......................................... .26
Fourth Quarter......................................... .74
<CAPTION>
Dividends
Period 1997 per Share
----------- ---------
First Quarter......................................... .26
Second Quarter........................................ .30
Third Quarter......................................... .30
Fourth Quarter........................................ 1.05
</TABLE>
Federal and State law applicable to banks generally restricts the
amount of cash dividends that a bank may pay. See "Capital Adequacy" portion of
the Management's Discussion and Analysis.
SEC FORM 10-KSB
A copy of the annual report on Form 10-KSB, to be filed with the
Securities and Exchange Commission, may be obtained without charge by directing
a written request to:
Arthur R. Bardwell
Comptroller
P. O. Box 871
Vicksburg, MS 39181
59
<PAGE> 62
MERCHANTS CAPITAL CORPORATION AND SUBSIDIARY
MERCHANTS CAPITAL CORPORATION OFFICERS
<TABLE>
<S> <C> <C>
Howell N. Gage Joel H. Horton James R. Wilkerson, Jr.
Chairman of the Board and Chief President and Chief Operating Secretary
Executive Officer Officer
</TABLE>
MERCHANTS BANK OFFICERS
<TABLE>
<S> <C> <C> <C>
Howell N. Gage Janet D. Ward Patricia M. Sigrest Donna Griffing
Chairman of the Board and Senior Vice President Vice President Marketing Officer
Chief Executive Officer
W. David Blackledge Chad C. Sonnek Pamela Ann James
Joel H. Horton Vice President Vice President Human Resources Officer
President and Chief
Operating Officer Arthur R. Bardwell Sheila Chaney
John R. Byram Comptroller Administrative Officer
James R. Wilkerson, Jr. Vice President
Executive Vice President and Edna C. Campbell Helen Hearn
Cashier Sandra M. Crevitt Assistant Vice President Administrative Officer
Vice President Account Services Officer
Lester L. Bellah Electronic Banking Officer Ana Ruiz
Senior Vice President James A. Cathey Administrative Officer
Glenn Driskell Assistant Vice President
James A. Cook Vice President Loan Officer Rita K. Jones
Senior Vice President Trust Officer
Don C. Horton Dianne Olin
Thomas T. Duren Vice President Assistant Vice President Linda H. Rowland
Senior Vice President Collections Officer Operations Officer
Elsie T. McGehee
Armand P. Guizerix Vice President Robbie B. Ricks Wallace R. Gay
Senior Vice President Assistant Vice President Compliance Auditor
H. Don Morton
Charles E. Hudson II Vice President John D. Shivers Debra Kette
Senior Vice President Assistant Vice President Banking Officer
Loan Officer
</TABLE>
MERCHANTS CAPITAL CORPORATION/MERCHANTS BANK
Board of Directors and Advisory Board
<TABLE>
<S> <C> <C> <C>
J.E. Blackburn, Jr.+ Joel H. Hill, Jr.* Martin S. Lewis+ Landman Teller, Jr.+
Owner/President Hill Farms Executive Vice President Attorney
Blackburn Motor Company Anderson-Tully Co. Teller, Martin, Chaney
Dr. W.B. Hopson, Jr.+ and Hassell
Rodney E. Bounds+ Surgeon Robert McConnell+
Vicksburg City Planner Investor Ernest G. Thomas+
Joel H. Horton+ President/Owner
Michael J. Chaney+ President and Chief Fannie Peeples* Ernest Thomas
President, Chaney Oil Operating Officer Retired Associates Realty
Company Merchants Bank
President/CEO Fred G. Peyton+ James R. Wilkerson, Jr.+
Charles D. Hudspeth* Owner/President Executive Vice President
Clyde R. Donnell* Vice President Peyton Distributing and Cashier
Retired C&H Knit Products Company Merchants Bank
Howell N. Gage+ Wendell H. Johnson* Robert E. Pickett+ R.C.Wilkerson III+
Chairman of the Board Bear Kelso Plantation, Superintendent Executive
Chief Executive Inc. Vicksburg Warren R.C. Wilkerson, Jones &
Merchants Bank School District Co.
C. Hays Latham+
Owner and President Dr. Glenn Taylor*
L&H Investments, Inc. Orthodontist
</TABLE>
<TABLE>
<CAPTION>
LEGAL COUNSEL AUDITORS
<S> <C>
Teller, Martin, Chaney and Hassell May and Company
Post Office Box 789, Vicksburg, MS 39180 Post Office Box 821568, Vicksburg, MS 39180
+ Member Merchants Capital Corporation and Merchants Bank * Member Advisory Board - Merchants Bank
</TABLE>
60
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
BancorpSouth, Inc.:
We consent to incorporation by reference in the Registration Statement on Form
S-4 of BancorpSouth, Inc. of our report dated January 20, 1998, relating to the
consolidated balance sheets of BancorpSouth, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997, which report is included in the 1997 Annual
Report on Form 10-K of BancorpSouth, Inc. and to the reference to our firm under
the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
September 9, 1998
<PAGE> 1
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Merchants Capital Corporation
We consent to incorporation by reference in the Post-Effective
Amendment No. 2 to a Registration Statement on Form S-4 (Registration No.
333-28081) of BancorpSouth, Inc. of our report dated January 20, 1998 on the
consolidated balance sheets of Merchants Capital Corporation and its
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997, which report appears in the
1997 Annual Report to Shareholders of Merchants Capital Corporation and to the
reference to our firm under the heading "Experts" in the Prospectus.
/s/ May & Co.
Vicksburg, Mississippi
September 14, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF SOUTHARD FINANCIAL
We hereby consent to the inclusion in this Registration Statement on
Form S-4 of our opinion, dated as of May 1, 1998, and to the references to our
firm in the Registration Statement.
/s/ Southard Financial
May 1, 1998
